Massachusetts Slaps Merrill Lynch with Auction-Rate Securities Fraud-Related Charges

The Massachusetts Secretary of the Commonwealth has filed securities fraud-related charges against Merrill Lynch for allegedly promoting the sale of auction rate securities while providing misleading information about market stability.

According to Secretary William Galvin, Merrill Lynch aggressively sold ARS to investors while telling research analysts to downplay market risks in its reports until the moment the company had to pull” the plug on its auctions.” The majority of auctions failed a day later. Galvin says that Merrill Lynch’s investors had no idea that potential trouble was brewing with their investments until it was too late for them to take action.

Galvin is also accusing Merrill Lynch of pressuring its research analysts, who are supposed to be neutral, into redacting or rewriting any reports that did not profile ARS positively. His complaint alleges that Merrill Lynch made approximately $90 million from the auction-rate securities market between 2006 and 2007. He wants Merrill Lynch to “make good” on the sales of the securities by making restitution to investors that sold their securities at below par.

Merrill Lynch issued a statement expressing disappointment that Massachusetts had filed its complaint. The company maintains that its advisers sold ARS because they thought that the securities would provide a higher return to investors.

Last week, Merrill Lynch said it would sell over $30 billion in toxic mortgage-related assets at a huge loss to help alleviate its own debt issues. A question to consider is whether Merrill Lynch, a large investment firm known for its powerhouse brand, can recoup its once solid reputation.

Related Web Resources:

Secretary Galvin Charges Merrill Lynch with Fraud in Auction Rate Securities Dealings (The Complaint)

Massachusetts sues Merrill Lynch over auction securities, USA Today, August 1, 2008
Merrill Lynch

If you suffered investment losses because you believe that you were given misleading information when you purchased auction-rate securities, contact Shepherd Smith Edwards & Kantas LTD LLP today.

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