Risk & Compliance

Who’s Seeking Merrill’s Auction-Rate Data?

Merrill Lynch says it is cooperating with various government agencies that want information from it, but doesn't say which ones.
Stephen TaubMay 6, 2008

Merrill Lynch said it has received requests for information from various governmental agencies regarding auction-rate securities, including the recent failure of auctions.

The banking giant did not provide further details, and didn’t note which governmental agencies were seeking the data. In a regulatory filing, it said that it is cooperating with those requests.

On March 25, a class action lawsuit was filed in the U.S. District Court for the Southern District of New York against Merrill Lynch on behalf of persons who purchased auction-rate securities that Merrill offered for sale between March 25, 2003, and last Feb. 13. The complaint alleged that the company failed to disclose material facts about ARS, according to Merrill’s regulatory filing. A second, similar action was filed the next day in the same court.

Merrill Lynch has countered that it intends to vigorously defend itself in these actions.

Meanwhile, Merrill Lynch sued XL Capital Assurance Inc. back in March, alleging that the debt guarantor improperly terminated seven credit default swaps on collateralized debt obligations. The complaint alleged that the termination of the swaps is improper and that the swaps remain in full force and effect. In the same filing, Merrill said Level 3 assets climbed to $82.4 billion at the end of the March quarter, up from $48.6 billion at year-end. These assets — deemed the most difficult to value — now account for 8 percent of total assets, up from 5 percent at the end of December.

Merrill’s Level 3 assets are primarily comprised of certain mortgage-related positions, credit derivatives, certain bonds and loans, private equity and principal investment positions and equity, currency and commodity derivative contracts.

It previously has been reported that the U.S. Securities and Exchange Commission and New York State, at least, have begun probes into various facets of auction-rate securities trading.