Merrill sued over auction securities
Published August 1st, 2008
The State of Massachusetts sued Merrill Lynch & Co Inc. yesterday, charging the company with fraud over its sales of auction-rate securities, as the state widened its actions against Wall Street firms.
The case, brought by the state’s top securities regulator, William Galvin, charged Merrill with fraud and “dishonest and unethical” conduct for creating and implementing a sales and marketing scheme that authorities said significantly misstated the nature and stability of the auction-rate market.
As a result, thousands of investors were left with illiquid investments, the complaint said.
Galvin’s spokesman, Brian McNiff, said Merrill, UBS and Bank of America Corp. were subpoenaed earlier this year over their sales of auction-rate securities. The investigation against Bank of America is ongoing, Mr. McNiff said.
The complaint charged Merrill with arranging for its “supposedly independent” research department to write favourable reports on the market for the securities in order to “assist in sales efforts geared towards reducing its inventory of auction-rate securities.”
Merrill dispute the charges.
“We are disappointed that Massachusetts filed this action because it ignores the only reason our advisers sold auction rate securities - they believed they were good investments for clients willing to trade some liquidity for higher return,” spokesman Mark Herr said in an e-mailed statement.
“Our research reflected the honest belief that auction-rate securities offered higher returns in exchange for less liquidity and noted that market changes had begun to occur,” Mr. Herr said.
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