Mass. Official To Proceed With Fraud Charges Against Merrill Lynch

Merrill Lynch (MER), the world’s leading investment bank in wealth management, capital markets and advisory companies, according to Reuters — could be charged by the State of Massachusetts with fraud and “dishonest and unethical” conduct.

These charges seem more serious when compared to those against Swiss bank UBS, since they involve, according to regulators — “the manipulation of research of auction-rate securities”.

The news comes after Merrill Lynch announced on Thursday, that effective January 15, 2009, and through January 15, 2010, the co. will offer to buy at par auction rate securities sold by it to its retail clients. Under the plan, retail clients of Merrill Lynch would have a year, beginning on January 15, 2009, and ending January 15, 2010, in which to sell Merrill Lynch their auction rate securities, if they so wish.

Despite this latest action taken from the investment bank, Massachusetts Secretary of State William Galvin stressed that charges in Merrill’s case “are serious because there was a clear effort at manipulation of research which is even a greater issue than the misleading sales of these auction rate securities instruments”.

Merrill Lynch has acknowledged the important role being played by regulators, including the
Massachusetts Securities Division, to resolve the outstanding liquidity issues for all of Merrill’s retail and institutional clients.

Obviously, as a result of the credit crunch, many of the bank’s clients have been caught in the liquidity crisis. This led Merrill’s chairman and CEO, Thain — to offer his clients the option of selling their positions to the investment bank.

In addition to the offer of buying auction rate securities, Merrill Lynch will also keep providing its clients with attractive loan arrangements to give them needed liquidity.

The investment bank plays multiple roles in the auction rate securities market, including providing services to issuers of auction rate securities, acting as an agent for investors (both Merrill Lynch private clients and institutional clients) and purchasing and selling as principal for Merrill’s own account.

On a separate note: This is not the first time Merrill has been involved with auction rate irregularities. On May of 2006, the U.S. Securities and Exchange Commission (SEC) announced that it had settled its investigation of fifteen firms, including Merrill Lynch, that participate in the auction rate securities market regarding their respective practices and procedures in the market.

Merrill Lynch agreed to pay a civil money penalty of $1,500,000 without however, admitting or denying the SEC’s allegations.

About Ron Haruni 1147 Articles
Ron Haruni

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