Risk & Compliance

Shareholders Unite to Hold Merrill Accountable

The first legal shots are fired in the brokerage company’s $8 billion investment debacle.
Stephen TaubOctober 31, 2007

At least two class-action lawsuits have been filed on behalf of shareholders against Merrill Lynch and company officers and directors following the company’s recent $8 billion write-off and the subsequent “retirement” of its CEO.

The lawsuits, brought by Coughlin Stoia Geller Rudman & Robbins LLP and Abraham Fruchter & Twersky LLP, accuse the company and individuals of issuing materially false and misleading statements about Merrill’s involvement with collateralized debt obligations (CDOs).

According to the Coughlin Stoia complaint, the defendants knew or recklessly disregarded that the company was more exposed to CDOs containing subprime debt than it disclosed. Also, the suit claims, company’s statements were “materially false” because they failed to inform the market “of the ticking time bomb” in the company’s CDO portfolio due to the deteriorating subprime mortgage market.

The other suit makes similar charges and uses similar language.

When Merrill announced that a third-quarter charge on its income statement would be $8 billion instead of $5 billion, the company’s stock dropped from $67.12 to as low as $61.40, closing at $63.22. Standard & Poor’s subsequently reduced Merrill’s credit rating to negative after the brokerage reported the biggest quarterly loss in its 93-year history, causing its stock to drop to $60.90.

Coughlin Stoia brought the lawsuit on behalf of Life Enrichment Foundation.

The suit names as defendants Stanley O’Neal, who announced his departure as chairman and chief executive on Tuesday, co-presidents Ahmass Fakahany and Gregory Fleming, and chief financial officer Jeffrey Edwards.