A retired Michigan couple has filed a securities arbitration claim against Merrill Lynch & Co. Inc. alleging that improper sales practices led to a loss of $650,000 — 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. of New York and Washington on July 29, according to Stephen Ostrofsky, a securities arbitration consultant with the Coral Gables, Fla., law firm Tramont Guerra & Nunez PA, which represents the couple, but declined to release their names.
The claim alleges that New York's Merrill committed sales practice violations including self-dealing and fraudulent conduct, 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 so-licited 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 that 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 in-volve allegations that sales practices were fraudulent and investors were given unsuitable recommendations by brokers, were filed with Finra.
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,” Mr. Eppenstein said.
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 shell- shocked 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.”
E-mail Sue Asci at [email protected].
