On January 16, 2009, Merrill Lynch paid $550 million to settle a collateralized debt obligation (CDO) lawsuit brought by the Ohio State Teachers Retirement System, among others. This development confirms that even larger, more sophisticated investors can recoup damages when they are misled into purchasing complex investments such as CDOs that are virtually incomprehensible for normal people.
According to the complaints against Merrill Lynch, the firm artificially inflated share prices of CDOs and other assets backed by subprime mortgages by issuing false and misleading statements about CDOs. Incomplete disclosures and unsuitable recommendations by investment advisers led many institutional investors, pension plans, and individuals to invest large portions of their accounts into these securities. These investors trusted those representatives with their investments only to watch their account values plummet when the subprime housing market started to unravel. Now, these accounts are worth a fraction of their original value.
Unfortunately, the Ohio State Teachers Retirement System is only one of many victims that were misled into investing in CDOs. There are many others in similar predicaments such as the Kenosha Wisconsin School Board, who is suing brokerage firm Stifel Nicolaus, Royal Bank of Scotland, and others for alleged fraud and negligence in connection with the sale of CDOs. According to Janet Tavakoli, a finance industry consultant in Chicago, investment firms sold CDOs to municipalities around the country on a widespread basis because of their lack of sophistication. “Bankers sell them products stuffed with junk,” she said.
Merrill is settling the case with no admission of wrongdoing, stating “‘ [We] concluded it was best to avoid the uncertainty, distraction, and costs of the litigation, and try to achieve certainty through these settlements.” Atlanta attorney J. Boyd Page of Page Perry, countered that “Notwithstanding Merrill’s explanation, it is apparent that some really bad conduct occurred here. $550 million justifies a lot of uncertainty, inconvenience and costs.”
This $550 million settlement with Merrill may be the first in what is likely to become a trend. Many other firms that were caught up in the fervor and “get rich quick” frenzy of the subprime market are now left facing lawsuits from scores of angry investors who were duped, cheated, or outright lied to about the safety and liquidity of these investments. This should bring hope to those institutions and municipalities who should consult attorneys with expertise in the matter to discuss their case and options.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions, and have aided clients who have been the victims of financial adviser abuse, unsuitable recommendations, and scams. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding their investment problems. For further information, please contact us.