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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