Capital Markets

Merrill Lynch Faces Subprime Probe

The SEC peers into the company’s investment portfolio, which lost billions in the third quarter, while a law firm launches a 401(k) investment inqu...
Stephen TaubNovember 8, 2007

The Securities and Exchange Commission has launched an investigation of Merrill Lynch’s subprime mortgage portfolio.

The investment banker said in its quarterly SEC filing was initiated on October 24. That was the day Merrill announced a net loss of $2.3 billion from continuing operations for the third quarter, citing significant net write-downs and losses in its Fixed Income, Currencies & Commodities (FICC) business.

The embattled broker also said that day that write-downs would amount to $7.9 billion for collateralized debt obligations and U.S. subprime mortgages. The company had said earlier in its earnings pre-release that it expected only a $4.5 billion write-down for those investments.

Meanwhile, Keller Rohrback L.L.P., a law firm that specializes in ERISA-related lawsuits, has launched an investigation to determine whether Merrill violated retirement laws related to investments in its stock by the firm’s 401(k) plan.

Keller Rohrback said it is concerned that Merrill and other administrators of the plan may have breached their fiduciary duties by investing the assets in company stock “when it was no longer a prudent investment for participants’ retirement savings.”

Based on similar concerns, retirement plan participants already have filed a lawsuit against another mega-corporation, Citigroup, charging that its 401(k)plan should not have invested heavily in Citigroup stock.