Merrill Lynch Fined $1.4 Million For Sale Of "Worthless" Securities

Tuesday, February 07, 2012 09:08
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Merrill Lynch Fined $1.4 Million For Sale Of

Tags: FINRA

Timing is everything. Merrill Lynch has been ordered to pay an investor $1.4 million to replace securities that may -- or may not -- have already been worthless by the time they were sold.

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The securities in question were collateralized debt obligations that a Nevada retiree argues were already deeply distressed before he bought them in mid-2007.

 

By the time he bought them, he says, they were "worthless."

 

Merrill counters that the securities were fine until later in the year. As such, they disagree with the FINRA arbitrator's ruling, blaming the market for their client's losses.

 

The firm has been ordered to pay back the $883,000 originally invested, along with interest and attorney fees.

 

Once again, the logic here is a little obscure and probably relies on facts we don't have.

 

Were the CDOs sold as "risk-free?" Not likely, or Merrill would have been chastised for that.

 

Did the firm know that they were already toxic when sold? That's another story.

 

Just because a security checked out in the initial due diligence check, it can still go bad on the shelf, as it were.

 

Merrill should have been monitoring everything it was actively selling, and if it was going rotten, they should have moved it away from their retail customers.

 

And was the investment sold as a deeply distressed opportunity? Again, probably not.

 

If the original investor had bought the instruments on the theory that they'd already been beaten up, it's his decision and his risk to absorb.

 

FINRA ruled otherwise, so apparently if Merrill knew they were selling rotten product, he wasn't told.

 

 

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