Massachusetts Sues Merrill Over Auction-Rate Securities

The auction rate securities market seize up has found more and more firms accused of less than upright behavior. The state of Massachusetts contends that Merrill misled investors about the risks of the instruments. A common complaint is that brokers presented the ARS as being as safe as money market funds.

From Bloomberg:

Massachusetts Secretary of State William Galvin accused Merrill Lynch & Co. of fraud, claiming the investment bank sold auction-rate securities to investors while misleading them about the market’s stability.

Merrill, based in New York, also “co-opted” its research department to help sell the securities, Galvin said in a statement today. The state’s administrative claim asks the third-largest U.S. securities firm to “make good” on sales of now-frozen holdings, compensate investors who sold their bonds or shares at a loss and pay an unspecified fine.

“This company was aggressively selling” the securities “to investors and its auction desk was censoring the research analysts to make sure they downplayed” market risks, Galvin said in the statement. “They knew the auction markets were in trouble, but the investors were the last to know.’….

Merrill decided to stop supporting bids with its own money five days after one of its analysts told financial advisers the bonds represented “a good, conservative, reasonable investment,” Galvin said.

“Our research reflected the honest belief that ARS offered higher returns in exchange for less liquidity and noted that market changes had begun to occur,” said Mark Herr, a spokesman for Merrill, using the acronym for auction-rate securities.

The securities firm, whose market value trails Goldman Sachs Group Inc. and Morgan Stanley, made about $90 million in profit during 2006 and 2007 from its auction-rate program, Galvin said in the statement.

“Time after time, when confronted with conflicts of interest, Merrill Lynch was consistent in that it placed its own interests ahead of its investor clients,” according to the complaint.

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  1. Richard Kline

    “Awww but look, yah can’t WIN if yah don’t play. I mean, is there anything else yah really need tah know . . . ?”

  2. wintermute

    Merrill Lynch is more and more desperate by the day. Another bout of cash raising from distressed assets. This time at 13.5c in the dollar. With traditional revenue streams choked – is this money disappearing into salaries?


    "The bond insurer follows Security Capital Assurance Ltd., which earlier this week paid Merrill Lynch & Co. $500 million to cancel $3.7 billion of CDOs."

  3. Naveen

    The U.S. dollar is going to be intentionally exhausted into worthlessness. Anyone holding any assets denominated in “dollars” such as Checking accounts, Savings accounts, IRA’s, 401-K’s, Pensions, Stocks, Bonds, Money market funds, will wake up one day to find all their “dollars” are no longer “money.”
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