Merrill faces arbitration over financial preferred stock

A retired Michigan couple has filed a securities arbitration claim against Merrill Lynch & Co. Inc. for sales practices that allegedly led to a loss of $650,000.
AUG 11, 2009
By  Sue Asci
A retired Michigan couple has filed a securities arbitration claim against Merrill Lynch & Co. Inc. for sales practices that allegedly led to a loss of $650,000. The case is the latest example of what some securities lawyers see as a rising tide of claims involving the preferred stock of financial firms. The claim was filed with the Financial Industry Regulatory Authority Inc. on July 29, according to Stephen Ostrofsky, securities arbitration consultant with the Coral Gables, Fla., law firm Tramont Guerra & Nunez PA, which is representing the couple, whose names were redacted from the claim documents by the law firm. The claim alleges that Merrill Lynch of New York committed sales practice violations including self-dealing and fraudulent content, according to documents provided by the law firm. Merrill's actions led to “an unsuitable allocation of retirement funds and securities concentration in banking, insurance and financial preferred stocks through the solicited participation in initial public offerings underwritten by Merrill Lynch,” according to the claim. Merrill declined to comment, because it was unaware of the filing, according to spokesman Bill Halldin. Some securities litigators say that claims against brokers involving “unsuitable recommendations” of financial services firms' preferred stock are on the rise following the big losses investors suffered when the financial crisis deepened last year. The number of securities arbitration claims of “unsuitable investments” involving preferred financial securities has at least tripled from what they see in the average year at Eppenstein & Eppenstein of New York, said principal Ted Eppenstein. “We've seen a terrific increase in the number of people being hurt by financial preferred [securities],” he said. “Customers did not understand the risks.” The claims, which typically involve allegations that sales practices were violated and investors were given unsuitable recommendations by brokers, were filed with Finra of New York and Washington. The cases involving the preferred stocks of financial companies are somewhat easier to prove than other unsuitable-investment cases, Mr. Eppenstein said. “That's because of the huge amount of publicity connected with the banks and their own trading investments and lending practices, which created the crisis,” he said. “You have to look at the timing of the purchases. And you have to look whether the recommendations were made at a time when the firm knew how bad things were. It's an easier case to show.” Other firms reported a spike in the claims. Already this year, Zamansky & Associates LLC of New York has a dozen claims it is working on. “It's at least double the number of the prior years,” said partner Jacob Zamansky. “We believe some of the leading brokerage firms were pushing the preferred [securities] on investors, and not really discussing the risks of collapsing financial stocks last year.” More claims will probably be made this year, Mr. Eppenstein said. “I think people are still shellshocked by what happened,” he said. “And not a lot of people have come forward yet.” The average wait for an arbitration claim to be heard may be up to 16 months now, Mr. Eppenstein said. “I expect as more cases come into the system, that could be back to two years,” he said. “For people who need relief, that's a long time to wait.”

Latest News

The hidden currency risk in global investing: what advisors need to know
The hidden currency risk in global investing: what advisors need to know

For those seeking international exposure amid economic uncertainty, understanding the impact of the US dollar's strength over other currencies is more important than ever.

CFP Board warns of tax "tipping point" as TCJA expiration puts financial plans at risk
CFP Board warns of tax "tipping point" as TCJA expiration puts financial plans at risk

With nearly nine in 10 seeing danger to clients' retirement income and legacy plans, among others, CFP professionals are urging strategic planning pivots and tax perks for advice-seekers.

Fed Day focus fades as Trump keeps stock markets watching
Fed Day focus fades as Trump keeps stock markets watching

As policymakers convene for their latest two-day meeting, investors are shifting their attention from elevated interest rates to growth concerns and tariff worries.

IRS eases off on some audits with retrenchments giving way to AI
IRS eases off on some audits with retrenchments giving way to AI

While he hasn't laid out a clear plan, Treasury Secretary Scott Bessent has gone on record touting "the great AI revolution" in improving the agency's tax collections and customer service.

More than three-quarters of advisors to embrace fee models by 2026, Cerulli says
More than three-quarters of advisors to embrace fee models by 2026, Cerulli says

Momentum continues for fee-based compensation as BD advisors ditch commissions and alternative compensation schemes emerge to lure diverse clientele.

SPONSORED Beyond the all-in-one: Why specialization is key in wealth tech

In an industry of broad solutions, firms like intelliflo prove 'you just need tools that play well together'

SPONSORED Record growth: Interval funds emerge as key players in alternative investments

Blue Vault Alts Summit highlights the role of liquidity-focused funds in reshaping advisor strategies