February 15, 2010

Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million

Bank of America Corp. (BAC) has agreed to pay $150 million, in addition to $1 million in disgorgement, to settle the Securities and Exchange Commission’s charges over the investment bank’s proxy-related disclosures regarding the Merrill Lynch acquisition. U.S. District Judge Jed S. Rakoff said he hopes to decide by February 19 on whether to approve the settlement. He also said he has more questions regarding the deal.

If approved, the settlement would conclude two SEC securities lawsuits against Bank of America over the Merrill Lynch merger. One complaint involves the investment bank’s alleged failure to reveal, prior to a 2008 shareholder meeting to vote on the acquisition, that financial losses were in the billions and rising at Merrill. The second lawsuit is over what the bank did and did not disclose about the billions of dollars in bonuses paid to Merrill Lynch employees right before the $50 billion merger was completed.

Under the proposed SEC settlement, the $150 million would go to Bank of America shareholders who suffered financial losses because of the investment bank’s alleged disclosure violations. Also, for three years BofA would have to maintain and implement a number of remedial measures, including hiring an independent auditor to look at its internal disclosure controls, hiring a disclosure counsel to work on bank disclosures, making sure that BofA’s chief financial officers and chief executive certify yearly and merger proxy statements, and allowing shareholders to have an advisory say-on-pay vote regarding executive compensation.

Earlier this month, New York Attorney General Andrew Cuomo filed a separate securities fraud lawsuit against Kenneth D. Lewis, who formerly served as BofA’s chief executive, Joe Price, the bank’s former chief financial officer, and Bank of America for allegedly concealing Merrill Lynch's losses. The complaint alleges that BofA general counsel Timothy Mayopoulos was let go because he wanted to disclose the losses at Merrill Lynch before the deal was finalized.

Related Web Resources:
Bank of America Still Dealing With Fallout From Merrill Deal, Fox Business, February 5, 2010

Cuomo Sues Bank of America, Even as It Settles With S.E.C., NY Times, February 4, 2010

US judge has questions on $150 mln SEC-BofA accord, Reuters, February 16, 2010

Continue reading "Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million" »

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Posted In: Bank of America , Financial Firms , Merrill Lynch , Securities Fraud

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December 22, 2009

Merrill Lynch Must Pay $26 million to States to Resolve Charges of Failure to License Associates

As a result of a widespread multi-state investigation which began in May 2008, Merrill Lynch Pierce, Pierce, Fenner & Smith Inc. has agreed to pay more than $26 million to settle claims that certain client representatives were not properly licensed in states where sales efforts were undertaken. The investigation, coordinated by the North American Securities Administrators Association (NASAA), discovered that 60 percent of the firm’s “client associates” were registered only in their home state, or in only one additional state.

States require that persons at securities firms involved in sales to client or prospective clients must be licensed in the states in which the persons contacted reside – with some de minibus exceptions. Although the Merrill Lynch associates were assisting the firm’s financial advisors, they were undertaking duties which required state licenses.

While states issue licenses based on a single multi-state examination, each also charges an annual fee for each representative of a firm licensed in that state. A financial advisor with a brokerage firm may have clients or prospective clients in a number, or even dozens, of states. If an advisor’s assistant is communicating with those clients or prospects in a sales capacity, he or she must be licensed in and a fee must be paid to each state as well.

it was reported by a NASAA's working group that the $26 million will be paid by Merrill Lynch for fines, penalties and sanctions and will be shared by the 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The firm has also agreed to implement a new internal system to ensure registration compliance in the future.

Merrill Lynch Pierce, Fenner & Smith Inc. was acquired by the Bank of America last year and is now a wholly owned subsidiary of that Bank. Both firms had been provided with billions of dollars in federal “bail-out” funds, and the acquisition has since been the subject of news stories, litigation and Congressional inquiry.

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Posted In: Bank of America , Merrill Lynch , NASAA

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December 11, 2009

Edward Jones and Merrill Lynch Brokers Like Where They Work, While UBS Representatives are the Least Happy

According to Registered Rep magazine’s latest Broker Report Card, 98% of Edward Jones brokers say their securities firm is the best place to work. 78% of Merrill Lynch brokers ranked their investment firm as the number the one workplace.

Findings were compiled from Internet surveys taken by 898 captive brokers last October. Other results:

• 73% of Morgan Stanley Smith Barney representatives gave their firm the top spot.
• 53% of Wells Fargo Advisors (includes Wachovia Securities and AG Edwards) brokers said their place of work was #1.
• UBS received the least accolades from its workers, with just 1/3rd of its brokers ranking it as the best securities firm workplace.

However, UBS brokers were at the top of the heap for self-reported metrics. According to UBS advisers, they claim an average $101.2 million for assets under management and gross production of $696,032. Other firms:

• Merrill Lynch representatives: $655,250 average gross production; $97.1 million under management
• Morgan Stanley Smith Barney brokers: $84.9 million under management ; $619,961 in production
• Wells Fargo representatives: $80.2 million in client assets; $542,350 in production
• Edward Jones representatives: $364,258 in average production; $58.6 million in assets under management

Yet, as Shepherd Smith Edwards & Kantas, LLP founder and stockbroker fraud lawyer William Shepherd points out, “securities brokers at large firms with average production receive about 30% of their gross production in pay. Brokers at Edward Jones receive about half. Thus, the take home pay for the brokers is not as different as is indicated. In any event, it is notable that the average stockbroker earns about $200,000 per year, a college degree is not required to gain a license, and the training takes only 4 months.”

Related Web Resources:
UBS Reps Least Happy Among Big-Firm Brokers, Wall Street Journal

Registered Rep

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Posted In: Edward D. Jones , Financial Firms , Merrill Lynch , Miscellaneous , Morgan Stanley , UBS , Wells Fargo

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December 3, 2009

SEC Submits Amended Complaint Against Bank of America Over Merrill Lynch Merger and Executive Bonuses

The US Securities and Exchange Commission’s amended complaint regarding the acquisition of Merrill Lynch by Bank of America Corp. last January includes one new assertion. In addition to the SEC’s original allegations against Bank of America, the agency now says that the investment bank was in violation of proxy regulations when it did not provide a merger agreement schedule, as well as a list identifying what would have been included in the schedule.

At the center of the SEC lawsuit is Bank of America’s proxy disclosure to shareholders that it wouldn’t pay year-end bonuses to Merrill executives. Yet, even as Merrill posted a record $27.8 billion loss last year, its executives were paid $3.6 billion.

BofA and the SEC initially attempted to settle the allegations for $33 million. Federal Judge Rakoff, however, wouldn’t sign off on what he considered both a swift resolution to an embarrassing situation for the bank and an attempt to make it appear as if the SEC was engaged in enforcement.

Rakoff accused SEC of not being hard enough on Bank of America, which it is supposed to regulate, even as shareholders suffered. He also accused the defendant of neglecting to take responsibility for its actions, which forced taxpayers to bail out the investment bank. A trial is scheduled to begin on March 1.

The US Congress and New York Attorney General Andrew Cuomo are also investigating the merger between Bank of America and Merrill Lynch.

Throughout the US, our securities fraud law firm represents investors who have suffered financial losses because of broker-dealer misconduct.

Related Web Resources:
SEC's Amended BofA Complaint: New Claims, but No New Defendants, Law.com, October 23, 2009

Judge Rejects Settlement Over Merrill Bonuses, NY Times, September 15, 2009

SEC Fines Bank Of America $33 Million Over Bonuses, Consumer Affairs, August 3, 2009


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Posted In: Bank of America , Financial Firms , Merrill Lynch , SEC Enforcement

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October 5, 2009

Former Merrill Lynch Employee, Guilty of $1.4 Million Texas Securities Fraud Scheme, Receives Prison Term

A judge has ordered a former Merrill Lynch employee, San Antonio stockbroker Bruce E. Hammonds, to serve almost five years in prison and three years supervised release for Texas securities fraud. Bruce E. Hammonds also must pay $1.1 million in restitution to the Merrill Lynch investors he defrauded and almost $60,000 to two clients that he continued to defraud after the broker-dealer fired him in June 2008.

Hammonds reportedly did not deny the alleged fraud when Merrill Lynch confronted him about his activities. The broker-dealer has paid the investment fraud victims back in full.

According to the criminal complaint affidavit, Hammonds opened a working capital account under the name B & J Partnership.He was supposed to register the account in an internal monitoring system, which he never did. Instead of placing investors’ funds in a Merrill Lynch fund, he deposited $1.4 million of their money in his working capital account. He provided clients with charts demonstrating the performance of the B&J Partnership investment fund even though no such fund existed.

Hammonds pleaded guilty to federal securities fraud charges earlier this year after an investigation found that between August 2006 and October 2008, Hammonds didn’t invest clients’ funds in stocks and hedge funds. Instead, he used the money for personal purposes, including an alleged house-flipping business. He gave back $486,000 to clients so it would appear as if they had made money off their investments.

Related Web Resources:
Judge sends ex-stockbroker to jail for bilking investors, Business Journal, October 2, 2009

Stockbroker sent to prison for $1.4 million scheme, My San Antonio, October 3, 2009

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Posted In: Financial Firms , Merrill Lynch , Texas Securities Fraud

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September 22, 2009

Bank of America’s Merrill Lynch unit agrees to $26.5 million national settlement stemming from Texas securities fraud claim

Following a Texas securities fraud claim that Bank of America's Merrill Lynch, Pierce, Fenner & Smith Inc. allowed unregistered sales persons to sell securities, the Bank of America unit has agreed to pay $26.5 million as part of a national settlement over the allegations. The state of Texas’s portion of the settlement is $1.6 million. The other states that were part of the task force, led by the Texas State Securities Board, are Arizona, Colorado, Vermont, Missouri, Delaware, and New Hampshire.

Client associates who accept trade orders must be registered not just in their own state but also in the client’s state. Per the probe, the task force determined that Merrill did not have a supervisory system that was designed in a manner that made sure that associates were in compliance with registration requirements. The task force was investigating a tip, provided in May 2008 by a Merrill Lynch employee, that the company saved money on registration fees by allowing client associates to register only in their home state and in a neighboring state.

Last week, Merrill Lynch agreed to pay the state of Texas another $12.7 million over a Texas securities fraud cause involving auction-rate securities. The settlement ends the state’s probe into the broker-dealer’s handling of ARS and clients’ funds even as the market was collapsing.

The board determined that not only did Merrill Lynch not tell investors that the market could very well collapse, but also that the broker-dealer offered financial associates sales incentives to sell ARS despite knowing that the auction process could fail.

September has been a rough month for Bank of America and Merrill Lynch. On the same day that the Texas securities commissioner announced the $26.5 million settlement, New York Attorney General Andrew Cuomo accused high-level Bank of America Corp. executives of failing to reveal key information about its Merrill Lynch & Co. takeover. Cuomo is threatening to press charges. Bank of America, however, is calling Cuomo’s allegations “spurious.”

BofA's Merrill to pay US$26.5M in settlement on unregistered salespeople, AP/Yahoo, September 8, 2009

Bank of America Calls Cuomo’s Merrill Allegations ‘Spurious,' Bloomberg.com, September 10, 2009

Merrill Lynch pays $12.7M to settle Texas auction rate securities case, Taragana.com, September 14, 2009

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Posted In: Bank of America , Broker Fraud , Financial Firms , Merrill Lynch

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September 8, 2009

$150 Million Settlement in Merrill Lynch Securities Class Action Lawsuit is Granted Preliminary Approval by District Court Judge

A district court judge issued his preliminary approval of a proposed $150 million settlement in the securities class action lawsuit against Merrill Lynch. The securities fraud lawsuit was filed for purchasers of specific Merrill Lynch preferred securities and bonds.

The plaintiffs of the Bond Action had invested in over $24 billion in preferred debt and securities that the broker-dealer had made available to the public between October 2006 and May 2008. The lead plaintiffs in the securities class action lawsuit were the Louisiana Municipal Police Employees’ Retirement System and the Louisiana Sheriffs' Pension and Relief Fund. They pursued their claims under the Securities Acts’ Sections 11, 2, and 15.

In addition to Merrill Lynch, a number of the company’s officers and directors, as well as the offering underwriters, are named as defendants in the complaint.

The lawsuit claims that offering documents for certain securities offerings did not accurately reveal the “existence and the value of tens of billions of dollars of complex derivative securities linked to subprime mortgages” that were contained in Merrill’s balance sheet. Such exposures allegedly almost “wiped out” the broker dealer by September 2008 and nearly caused Bank of America, Merrill’s acquirer, to “topple.” A federal bailout helped rescue the merger.

The parties had previous agreed to a $475 million settlement, in addition to a $75 million settlement for a related class action per ERISA.

The defendants went into the settlement even though the motions to dismiss the amended complaint were pending. A November 23 hearing for granting final approval is now scheduled.

Related Web Resources:
BofA to settle Merrill lawsuit for $150 million, Reuters, August 24, 2009

Court Preliminarily Approves $150 Million Subprime-Related Merrill Lynch Bond Action Settlement, The D & O Diary, August 27, 2009

Louisiana Municipal Police Employees’ Retirement System

Louisiana Sheriffs' Pension and Relief Fund

Continue reading "$150 Million Settlement in Merrill Lynch Securities Class Action Lawsuit is Granted Preliminary Approval by District Court Judge" »

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Posted In: Financial Firms , Merrill Lynch

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September 2, 2009

Disgruntled Investors Continue to File Securities Fraud Litigation Against Merrill Lynch Even Eight Months After Its Acquisition by Bank of America Corp.

The plaintiffs of some 166 of the 221 cases filed against Merrill Lynch & Co. since January 1, 2009 are alleging securities fraud-related violations. This means that Bank of America Corp, which acquired the broker-dealer at the beginning of the year, has assumed responsibility for the outcome of these civil cases. Some of these investor fraud claims were filed as late as last month.

Some cases discuss Merrill’s involvement in the marketing, underwriting, and selling of securitizations, or asset-backed securities. Other cases delve into Merrill’s dealings in the auction-rate securities market. A number of the securities fraud cases against Merrill are class action lawsuits. Merrill Lynch is the lead defendant in many of the cases and one of several financial firms named in the other complaints.

Some of the Securities Fraud Cases Against Merrill Lynch:
Gordon v. Royal Bank of Scotland Group plc.: Merrill Lynch and several other financial firms are accused of misrepresenting or omitting key information in offering documents when participating in securitization underwriting.

Public Employees Retirement System of Mississippi v. Merrill Lynch & Co. Inc.: Merrill is accused of violated specific sections of the 1933 Securities Act when it allegedly made bogus statements in registering and offering documents connected to asset-backed securities.

Teva Pharmaceutical Industries Ltd. v. Merrill Lynch & Co. Inc.: The pharmaceutical company plaintiff contends that it lost $5 million when investing in ARS that the broker-dealer structured and sold.

Ginsberg v. Merrill Lynch & Co. Inc.: This class action claim accuses Merrill of failing to tell shareholders that the firm was significantly exposed to collateralized debt obligations and other high-risk financial products. The plaintiffs claim that senior management at Merrill Lynch let bogus information go out during conference calls and in registration statements and news releases.

If you are a former Merrill Lynch investor and you believe you were the victim of securities fraud, our stockbroker fraud law firm would be happy to offer you a free case evaluation.


Related Web Resources:
Gordon v. Royal Bank of Scotland Group plc, S.D.N.Y., 09-cv-00704, 1/28/09

In re: Merrill Lynch & Co. Inc., Auction Rate Securities (ARS) Marketing Litigation, Justia Docket

Posted by Shepherd Smith Edwards & Kantas | | Email This Post

Posted In: Auction-Rate Securities , Bank of America , Broker Fraud , Class Action Lawsuits , Collateralized Mortgage Obligations , Financial Firms , Merrill Lynch

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August 12, 2009

UBS AG and Merrill Lynch Collectively Fined $250,000 by FINRA for Closed-End Fund Actions

UBS Financial Services Inc. has agreed to be fined $100,000 and Merrill Lynch, Pierce, Fenner & Smith Inc. has consented to a $150,000 fine, says the Financial Industry Regulatory Authority, for alleged supervisory failures that resulted in the inappropriate short-term sales of closed-end funds that were bought at initial public offerings for the funds. By agreeing to settle, the broker-dealers are not deny or admitting to the FINRA charges. They are, however, consenting to the findings.

FINRA also announced that it was suspending five Merrill Lynch brokers for 15 days. Each of them must pay a $10,000 fine for allegedly making fund recommendations that were unsuitable for investors.

Merrill Lynch brokers that FINRA has sanction include:

• Kenneth C. Iwelumo (his clients lost about $563,000)
• Joseph Miller (approximately $130,000 in client losses)
• Ronald Kemp (about $411,000 in customer losses)
• Michael Kizman (about $210,000 in losses)
• John Ong (about $350,000 in client losses)

The investigation into the activities of a number of former UBS brokers is ongoing.

Closed-End Funds
Closed-End Funds are investment companies that sell a fixed number of shares during an initial public offering. These sales come with built-in sales charges. The CEF’s at issue came with a 4.5% sales charges and a 30-90 day penalty bid period after the IPO. If a client sold the CEF that had been purchased at the IPO during this time period, the broker would lose the commission.

FINRA says that both broker-dealers knew that CEF’s bought at IPO’s are more appropriate for long-term investments and that because of the sales charges that come with their purchases, it is inappropriate to engage in the short-term trading of CEF’s. FINRA claims that Merrill Lynch and UBS did not have the proper supervisory procedures and systems in place so that brokers couldn’t and/or wouldn't make such unsuitable CEF sales.

FINRA also says that both broker-dealers failed to warn supervisors about the potential issues that could result from such activity and did not properly train registered individuals. Due to this improper supervision, brokers for Merrill and UBS recommended that certain clients engage in short-term sales of CEF’s bought at IPOs without fully understanding the financial ramifications these recommendations would have on their clients’ finances.

FINRA is concerned about brokers who convince customers to buy CEF’s during their IPO’s and then wait until after the penalty bid period is over to recommend that clients sell the CEF’s—usually at a loss. These brokers then recommend that clients use the proceeds from the sale to purchase more CEF’s at initial public offerings.

FINRA Fines Merrill Lynch, UBS for Supervisory Failures in Sales of Closed-End Funds; Customers Get More Than $5 Million in Remediation, FINRA, July 28, 2009

Merrill, UBS Are Fined in Closed-End-Fund Case, The Wall Street Journal, July 29, 2009

Continue reading "UBS AG and Merrill Lynch Collectively Fined $250,000 by FINRA for Closed-End Fund Actions" »

Posted by Shepherd Smith Edwards & Kantas | | Email This Post

Posted In: Broker Fraud , Broker-Dealers , Financial Firms , Merrill Lynch , UBS

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August 7, 2009

Merrill Lynch & Co. Sued Over Auction-Rate Securities by Teva Pharmaceutical Industries Ltd. and Seneca Gaming Corp.

On Wednesday, Teva Pharmaceutical Industries Ltd. sued Merrill Lynch & Co., a Bank of America Corp. unit. The pharmaceutical company’s securities fraud lawsuit accuses the brokerage firm of making misrepresentations that resulted in its purchase of $273 million in ARS. Merrill Lynch underwrote the securities that Teva bought. A day later, Seneca Gaming Corp. filed its own lawsuit against Merrill Lynch. The complaint is over a $5 million tranche of ARS backed by mortgages that the company had purchased.

While the agreements that brokerage firms have reached with regulators generally require that the former buy back auction-rate securities from small companies, individual investors, and nonprofits, the broker-dealers are only required to work with bigger investors or try their best to help them deal with their illiquidity issues. As a result, some large investors are taking matters into their own hands by filing securities fraud claims and lawsuits. These investors include Bankruptcy Management Solutions Inc., Braintree Laboratories, Ocwen Financial Corp. Ashland Inc., and Texas Instruments. Other large companies will likely follow suit.

For the large investors that are undecided on what action to take regarding their frozen ARS, it is important from them to realize that more financial losses are likely.
Shepherd Smith Edwards and Kantas, LLP founder and securities fraud attorney William Shepherd notes, “Our law firm is handling a number of substantial ARS claims for large investors with funds that have been frozen for more than a year. Some have suffered consequential damages as a result. Other clients have sold and sustained large losses or will face such losses if and when they do sell. Many investors simply seek to unlock their funds as soon as possible. Our legal fee arrangements differ depending upon these circumstances.”

Related Web Resources:
Merrill Lynch Sued By Teva, Seneca Gaming Over ARS Sales, CNN, August 6, 2009

Will Their Be An Onslaught of ARS Litigation?", Law 360

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Posted In: Auction-Rate Securities , Bank of America , Financial Firms , Merrill Lynch

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August 6, 2009

Bank of America Agrees to settle SEC Charges of Merrill Lynch Bonuses for $33 Million But Judge Blocks Settlement

Although Bank of America has agreed to settle charges by the Securities and Exchange Commission that the broker-dealer misled investors about Merrill Lynch bonuses worth billions of dollars, a federal judge is withholding approval for the $33 million penalty. The U.S. District Court for the Southern District of New York Judge Jed S. Rakoff has scheduled a hearing for Monday to discuss the matter.

Without denying or admitting to the charges, Bank of America had consented to pay the amount. The SEC has accused Bank of America of failing to notify investors about plans to pay top Merrill executives $5.8 billion in bonuses for the 2008 fiscal year. Regulators say that instead, the brokerage firm told investors that year-end performance bonuses were not going to be given out.

It wasn’t until February when New York State Attorney Attorney General Andrew Cuomo accused Merrill Lynch of secretly issuing the rewards to its executives before its merger with Bank of America that news of the bonuses was revealed. Investigators also found out Merrill had bumped up the date of its end-of-year bonus payments and that Bank of America had let Merrill pay the bonuses to its executives.

Scott Silvestri, a Bank of America spokesperson, says the settlement is a “constructive conclusion” to the dispute. The SEC’s charges against Bank of America is the first case that the federal government has brought against a financial firm that has been closely linked to the ongoing financial crisis.

There are, however, critics who are not satisified with the settlement. The Washington Post quotes Rep. Dennis J. Kucinich (D-Ohio) of criticizing the settlement amount. The head of the House Oversight and Government Reform subcommittee noted that it pays in America to commit a corporate crime. Former SEC chief accountant Lynn Turner expressed disappointment that no executives were charged with any wrongdoing.

Bank of America has complained that federal regulators pressured the broker-dealer to make the deal with Merrill, which was in financial trouble at the time.

Related Web Resources:
Judge Blocks BoA Settlement, Washington Post, August 6, 2009

Judge raps $33m bank bonus fine, BBC, August 6, 2009

Bank of America Pays $33 Million to Settle Merrill Bonus Charges, Washington Post, August 4, 2009

Continue reading "Bank of America Agrees to settle SEC Charges of Merrill Lynch Bonuses for $33 Million But Judge Blocks Settlement" »

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Posted In: Bank of America , Financial Firms , Merrill Lynch

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May 27, 2009

Merrill Lynch Life Agency to Pay Illinois Division Of Insurance $18 Million Over Funeral Trust Scam Allegations

Merrill Lynch Life Agency Inc. will pay $18 million to the Illinois Division of Insurance to settle the state’s investigation into the investment firm’s involvement with a trust fund overseen by the Illinois Funeral Directors Association. The trust was supposed to cover funeral costs for about 49,000 consumers that had prepaid for funeral contracts. The $18 million will be placed in a special fund and will be used to offset losses by association members when delivering on their funeral contract commitments to consumers.

Merrill Lynch & Co. Inc, between 1986 and 1999, had marketed and sold tax-exempt variable universal life insurance policies as investments within the pre-need trust. Unfortunately, in 2007, the trust imploded, and its value dropped from over $300 million to approximately $250 million.

The Illinois Department of Financial and Professional Regulation then conducted a probe into the trust and discovered that the funds’ trustees had used the policies as investments within the trust. Also state comptroller Dan Hynes is asking the association to account for $10 million that trustees allegedly obtained from the trust as excess management fees.

According to state regulators, Merrill Lynch Life registered representative Edward L. Schainker, who served as the association’s investment advisor, recommended and sold over 300 policies to its members. The policies were to offer tax-exempt investment returns. Merrill Lynch’s life insurance division put forth 120 policies and received over $32 million in premiums that were invested in bonds and stocks that over the years have dropped in value and placed the trust’s solvency at risk.

Schainker is accused of violating Illinois insurable-interest laws and of failing to determine whether his investment plan could provide the needed revenue to cover trust liabilities. The Illinois secretary of state’s office has suspended his broker’s license and the state’s insurance division is seeking to revoke Schainker’s insurance license. He also has been ordered to pay civil penalties of $100,000.

By settling, Merrill Lynch Life is not admitting to the allegations made by the state of Illinois.

Related Web Resources:
Merrill Lynch to pay $18 million to halt state probe into funeral trust fund, Chicago Tribune, May 20, 2009

Illinois slams Merrill Lynch Life to the tune of $18M for funeral trust scam, Investment News, May 21, 2009

Illinois Funeral Directors Association

Illinois Department of Financial and Professional Regulation

Continue reading "Merrill Lynch Life Agency to Pay Illinois Division Of Insurance $18 Million Over Funeral Trust Scam Allegations" »

Posted by Shepherd Smith Edwards & Kantas | | Email This Post

Posted In: Financial Firms , Merrill Lynch

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April 20, 2009

Merrill Lynch Cannot Prevent Former Brokers From Using Customer Information and Soliciting Clients, Says District Court

A motion by Merrill Lynch, Pierce, Fenner & Smith Inc. to stop two former financial advisers from using customer information they received while working at the investment firm has been denied. In the U.S. District Court for the District of Utah, Judge Dale Kimball says Merrill neglected to show that it would suffer irreparable harm if that relief wasn’t granted or that public interest/ the balance of that harm is in its favor.

Per the court, Paul Aiman started working for Merrill as a financial adviser in 1989 and Rex Baxter was hired to do the same in 1997. Both men resigned from the firm on April 3 to work for Ameriprise Financial Services. Merrill countered by trying to obtain a temporary restraining order preventing the former employees from using customer data the two now ex-advisers allegedly misappropriated.

Merrill asked the U.S. District Court for the District of Utah to enjoin the two men from soliciting its clients and making them give back or “purge” all documents and data that they had allegedly illegally misappropriated, such as client contact information, financial statements, account figures, assets, investment goals, net worth, investment histories, and other financial data.

The court, however, said that to receive preliminary injunctive relief or a TRO, the moving party must show that:

• There was a good chance of succeeding on the merits.
• The possibility of injury surpasses the harm that the opposing party might experience.
• Relief is in the public interest.
• Irreparable harm will occur unless relief is granted.

In regards to irreparable harm, the court said that Merrill’s argument that because the two men worked with 180 clients with millions of dollars in assets it was not possible to determine damages if relief is not granted is “outdated” since all transactions are electronically monitored. The court also said that there is no clear evidence that the defendants even possess any of the clients’ financial information and that any customer information they might have could easily be accessed through regular sources, such as telephone directories. The court noted that it is not unusual for brokers to move to a different brokerage firm, bringing their client lists with them, and that preventing the two men from using these lists could hamper their careers—causing them great harm.

Also, the “diminished public interest” in Merrill’s enforcement of non-solicitation agreements—considering that many brokerage firms opt not to enforce such agreements—and the public interest in a client being able to keep working with their chosen financial adviser do not indicate that the “public interest” factor weighs in Merrill's favor.

The parties will now take their case before an arbitration panel.

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April 15, 2009

US Lawmakers Want SEC and Treasury Department to Answer Questions About Merrill Lynch Executive Bonuses and TARP Funds

US lawmakers are asking government regulators some tough questions about executive compensation at investment banks. Last week, Rep Dennis Kucinich, who heads the House Oversight Committee's Domestic Policy Subcommittee, asked the Securities and Exchange Commission to determine whether Bank of America Corp. violated federal securities laws when it did not tell shareholders that Merrill Lynch was going to pay executives $3.62 billion in bonuses. Kucinich noted that these bonuses were 22 times larger than what AIG executives were offered—equivalent to 36.2% of the Troubled Asset Relief Program (TARP) funds that Merrill received.

A March filing by New York Attorney General Andrew Cuomo (whose office is also pursuing this matter) claims that even though the firm had already made the decision to accelerate bonus payments, Merrill told Cuomo and the House Oversight Committee that it planned to make incentive compensation decisions at the end of the year. Cuomo claims that Bank of America neglected to tell shareholders that Merrill was going to offer executives big bonuses before the BofA merger was final.

When BofA was questioned about Cuomo’s claims, the bank said it revealed everything it was required to before the shareholders voted on the merger. Kucinich says that this makes him wonder about the SEC’s interpretation of fiduciary duty when it comes to revealing all “material” data to shareholders when asking for shareholder action and what is considers “material” information for proxy rules meant to protect investors under the Securities Exchange Act of 1934.

He asked the SEC whether it thinks that B of A’s omission is a material one and, if so, what it would do to redress it. The House Oversight Committee is trying to determine whether officials from Bank of America and Merrill misled Congress about the executive bonuses and their timing.

Meantime, Rep. Edolphus Towns, who oversees the House Committee and Oversight Reform, told Treasury Secretary Tim Geithner that he was worried about media reports that the Treasury Department was trying to “circumvent” statutory restrictions regarding executive pay for companies availing of TARP funds. Towns wants Geithner to respond to news reports that the Treasury Department established special entities to receive federal bailout funds that could then be channeled toward corporate recipients so as to avoid executive pay restrictions and requirements that the US get an ownership interest in the bailout firms. Towns cautioned that it would not be wise for the Treasury Department to allow excessive pay practices to continue at firms that taxpayers had bailed out.

Kucinich Asks If Merrill Bonuses Broke Laws, NY Times, April 7, 2009

Read Representative Towns' Letter to Treasury Secretary Geithner (PDF)

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April 5, 2009

Merrill Lynch & Co Ordered to Pay FINRA Arbitration Panel $39.8 Million

Merrill Lynch & Co. must pay an investor $39.8 million in compensatory damages because of negligence on the part of one a subsidiary broker-dealer. A Financial Industry Regulatory Authority arbitration panel issued the award to Trustees of the Masonic Hall & Asylum Fund, which is an endowment for an Utica health-care facility. This is one of the largest awards against a Wall Street firm.

The fund’s arbitration claim had accused Merrill Lynch and subsidiary Advest Inc. of misrepresentation, negligence, breach of fiduciary duty, and breach of contract. The claim had also accused Advest Inc. of encouraging it to buy into Sphinx Managed Futures Index Fund LP, which was owned by Refco Inc. However, Refco Inc. collapsed in 2005 after giving notice that its chief executive had concealed bad debts valued at about $430 million from firm auditors. The fund says it lost money because of Advest Inc.’s poor recommendation.

The FINRA panel awarded the fund $30.6 million plus $9.2 in interest from as far back as November 2005. Merrill Lynch announced that it was not pleased with the ruling and says that the case stemmed from investments that occurred before the Wall Street firm acquired Advest.

The FINRA panel said Merrill Lynch can seek damages in bankruptcy proceedings for the Refco unit in charge of the Sphinx fund, and the broker-dealer says it will do so.

One way for investors who have lost money because of securities fraud to recover their investments is to go through the arbitration process.

Related Web Resources
Merrill to Pay $40 Million in Refco Case, Wall Street Journal, March 30, 2009

Merrill socked with historic arbitration ruling, Crain's New York Business, March 31, 2009

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March 22, 2009

Merrill Settles SEC Charges Over ‘Squawk Box’ Misuse for $7 Million

Merrill Lynch will pay $7 million to settle Securities and Exchange Commission administrative charges that the investment bank neglected to protect customers whose orders were transmitted over “squawk boxes.” The penalty is the second highest fine that the SEC has imposed for cases involving Section 15(f) of the 1934 Securities Exchange Act and Section 204A of the 1940 Investment Advisers Act violations. These statutes mandate that investment advisers and broker dealers implement procedures and policies that would keep employees from misusing nonpublic, material data.

The SEC says that from 2002 to 2004, a number of Merrill Lynch brokers at three branch offices let day traders, who did not work for the company, hear customers’ unexecuted orders as they were being broadcast over the internal intercom systems. The traders used the information to trade before Merrill’s institutional clients' orders were placed.

The SEC says Merrill did not have the procedures or polices to prevent employees from accessing the squawk boxes or to supervise them to make sure that they did not misuse customer order data. In addition to paying the penalty, Merrill Lynch says it will implement a number of measures to ensure that customer order data is protected any time it is sent over squawk boxes or other technologies used for their transmission.

U.S. Attorney for the Eastern District of New York had filed criminal charges related to the squawk box front-running activities against a number of Merrill employees, A.B. Watley Group Inc., and several individuals. While seven defendants were acquitted of nearly all the charges, they must go back to trial for a single count of conspiracy to commit securities fraud. Former Merrill stockbroker Timothy O'Connell was found guilty of witness tampering and issuing false statements.

Related Web Resources:
SEC Charges Merrill Lynch For Failure to Protect Customer Order Information on "Squawk Boxes", SEC, March 11, 2009

SEC Administrative Proceedings Against Merrill Lynch, Pierce, Fenner, & Smith Inc., (PDF)

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February 18, 2009

Merrill Lynch, Pierce, Fenner & Smith Inc To Settle SEC Charges of Pension Consulting Business-Related Violations for $1 Million

Merrill Lynch, Pierce, Fenner & Smith Inc has reached a $1 million settlement agreement with the Securities and Exchange Commission over charges that the broker-dealer misled its pension consulting clients by neglecting to disclose conflicts of interest. By agreeing to settle, Merrill Lynch is not denying or admitting wrongdoing. The investment firm will, however, cease and desist from committing future violations.

According to the SEC, Merrill Lynch recommended that clients pay hard dollar fees using directed brokerage. The firm's investment advisers, however, failed to mention that choosing this option—which would direct trades to be executed through Merrill—could allow the company and its investment adviser representatives to receive substantially higher revenues. The SEC also accused Merrill Lynch of neglecting to reveal a similar conflict of interest when it recommended to clients that they utilize the firm’s transition management desk and of making misleading statements about the firm’s process for identifying new money managers.

SEC charges against Merrill Lynch include anti-fraud provision violations, failure to maintain specific records, and failure to supervise its investment advisers in the Ponte Vedra South office in Florida.

Also cited by the SEC for misleading pension consulting clients about the way Merrill identified new money managers is Jeffrey Swanson. The former Merrill adviser agreed to case and desist from violating the 1940 Investment Advisers Act in the future. By agreeing to the censure, however, Swanson is not admitting to or denying wrongdoing.

The SEC also censured former Merrill Lynch adviser Michael Callaway for breach of fiduciary duty when he made misrepresentations about the manager identification process and his compensation related to transition management services. The SEC says Callaway should have made sure that any conflicts of interest should have been revealed to clients. Both Callaway and Swanson were from the Florida office.

The SEC says that the outcome of this case should remind investment adviser representatives that they must disclose all conflicts of interest when offering advice to clients.

Related Web Resources:
SEC Charges Merrill Lynch With Misleading Pension Consulting Clients, SEC, January 30, 2009

Read the SEC Administrative Proceeding Against Merrill Lynch, Pierce, Fenner & Smith, Inc., January 30, 2009 (PDF)


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February 11, 2009

Merrill Lynch Pierce Fenner & Smith Does Not Have to Halt Redemption of ARS Clients, Says Court

In the U.S. District Court for the Southern District of New York, Judge Shira Scheindlin said that TGS- GS-NOPEC Geophysical Co failed to convince the court that the institutional investor would suffer irreparable harm if Merrill Lynch Pierce Fenner & Smith Inc. continues redeeming clients’ ARS under the investment firm’s current procedures. The judge refused to stop the redemptions and said that the geographical exploration company has admitted that any harm caused by an improper redemption procedure can later be remedied.

Following the collapse of the auction-rate securities market, Merrill Lynch devised a redemption plan to help restore some liquidity to investors, whose ARS were now frozen. The scheme allows the investment bank to redeem partial liquidity to its clients. Anytime an issuer declared a partial redemption, Merrill would note a $25,000 share from each client account before giving out the remaining shares through a proportionate lottery.

Since October 2008, GS-NOPEC Geophysical Co held some $64.5 million in ARS accounts with Merrill. The company claims that Merrill's redemption scheme is not in its favor.

TGS began FINRA arbitration proceedings against Merrill in November. The company wants to repurchase its ARS with interest, recession purchases, or the actual damages of its holdings’ par value. TGS later filed for injunction pending arbitration and asked the court to mandate that Merrill Lynch allocate prior and future partial redemptions solely in proportion to holdings.

The court refused. The judge said that any harm that TGS incurs can be remedied financially, which is what the company is seeking via arbitration.

TGS-NOPEC Geophysical Company v. Merrill Lynch, Pierce, Fenner & Smith, Inc., Federal District Court Filings and Dockets, Justia


Related Web Resources:
TGS-NOPEC Geophysic

Merrill Lynch Pierce Fenner & Smith Inc.

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February 9, 2009

Merrill Lynch, J.P. Morgan and Others fail to Obtain Dismissal of IPO Case by Houston Judge

In Texas, a Houston judge has ruled that a would-be class securities lawsuit filed against JP Morgan Securities, Inc., Merrill Lynch, Pierce, Fenner and Smith and a number of other defendants can move forward. The plaintiffs were investors in Superior Offshore International Inc., a company that collapsed following a failed initial public offering. The four other defendants are former Superior company executives.

In the US District Court for the Southern District of Texas, Judge Nancy Atlas found that the plaintiffs met their burden when pleading material misrepresentations and omissions in Superior's registration statement. She denied the defendants’ request to dismiss the complaint.

Superior Offshore International Inc. had provided commercial diving services and subsea construction to the natural gas and crude oil industry in the Gulf of Mexico. The company began IPO proceedings of about 10.2 million commercial shares at $15/share in April 2007. Merrill Lynch and JP Morgan acted as the primary underwriters. It was after this that Superior experienced major losses and its price dropped until it reached $1.08/share in April 2008. Soon after, Superior announced that it was shutting down operations.

In their consolidated class action, the plaintiffs claimed that while the registration statement revealed that the Superior board chairperson’s two sons were receiving salaries of $48,000 and $120,000, it failed to note that the two men weren't doing any significant tasks for their respective incomes. The plaintiffs also questioned Superior’s claims that there was a high demand for its services and that certain hurricane-related projects were expected to continue for a number of years when, in fact, that work had declined significantly. They challenged Superior’s claim that it had multiple customers and maintained that the company had provided materially misleading data about its management team.

The defendants had tried dismissing the complaint by citing a failure to state a claim. They said they could not be held liable for events that transpired after the IPO. While the Texas court said it recognized that Superior’s registration statement included warnings about possible risks that could arise, it determined that the plaintiffs were not questioning the accuracy of the potential risks that were noted. Rather, the court said they were challenging the completeness and accuracy of the information Superior had provided about its current state at the time of the IPO.

Related Web Resources:

Superior Offshore International, Inc., Securities Class Action Clearing House, Stanford Law School

Superior Offshore International Confirms Plan of Liquidation, Stockhouse.com, January 30, 2009

Continue reading "Merrill Lynch, J.P. Morgan and Others fail to Obtain Dismissal of IPO Case by Houston Judge" »

Posted by Shepherd Smith Edwards & Kantas | | Email This Post

Posted In: Financial Firms , J P Morgan - Chase , Merrill Lynch , Texas Securities Fraud

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February 2, 2009

Merrill Lynch Ends Investor and Employee Class Action Lawsuits with $550 Million Settlement

Last month, Merrill Lynch & Co. reached a $550 million settlement with investors and employees over losses related to investments in subprime mortgage-backed assets. A court must approve the proposed settlements.

In the securities class action case, the plaintiffs have accused Merrill Lynch of using statements on collateralized debt obligations and other assets to inflate the market price of its own shares. As a result, the plaintiffs contend, investors lost money.

The Ohio State Teachers Retirement System is the lead plaintiff in the class action lawsuit, which represents investors who bought preferred shares between October 17, 2007 and December 31, 2008. The agreed upon settlement is $475 million in cash.

Plaintiffs of the Employee Retirement Income Security Act class action have agreed to settle for $75 million in cash. Participants in the ERISA lawsuit are Merrill Lynch employees with Merrill Lynch stock in specific retirement plans. The plaintiffs have accused Merrill of failing to adequately reveal subprime-related losses that impacted its retirement accumulation plan, its savings and investment plan, and its employee stock ownership plan.

By agreeing to settle, Merrill Lynch says it is not admitting to any wrongdoing.

Fallout from the Subprime Mortgage Crisis
The subprime mortgage crisis has resulted in millions of dollars in losses for investors. If you believe that you were a victim of investor fraud or broker dealer misrepresentation and that these inappropriate actions caused you to sustain investor losses, you may be entitled to the recovery of those losses.

Related Web Resources:
Merrill Lynch settles subprime lawsuit, Business Insurance, January 20, 2009

Merrill settles employee class action for $75M, Investment News, January 19, 2009

Ohio announces $475M Merrill Lynch settlement, Forbes.com, January 16, 2009

Continue reading "Merrill Lynch Ends Investor and Employee Class Action Lawsuits with $550 Million Settlement" »

Posted by Shepherd Smith Edwards & Kantas | | Email This Post

Posted In: Financial Firms , Merrill Lynch , Subprime Mortgage

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