Merrill Lynch Investor Arbitration Claim Results in $39.8 Million Award

An arbitration panel through the Financial Industry Regulatory Authority (FINRA) awarded an investor $30.6 million in compensatory damages and $9.2 million in interest against Merrill Lynch as a result of the negligence of one of their subsidiary broker-dealers.

Trustees of the Masonic Hall and Asylum Fund in Utica, N.Y were the investor who brought the FINRA arbitration claim, which likely ranks among the top 10 awards entered against a brokerage firm.

FINRA oversees approximately 5,000 brokerage firms, including 173,000 branch offices and 659,00 registered securities representatives throughout the United States. All disputes which arise between investors and their brokers are resolved through FINRA arbitration panels.

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A 3-member FINRA panel issued the Merrill Lynch arbtration award on March 16, 2009, allowing the Masonic Hall and Asylum Fund to recover investment losses associated with a recommendation that they purchase a limited partnership interest in a business unit of a company that collapsed in 2005 due to $430 million in bad debts.

In the claim, it was alleged that Merrill Lynch and its subsidiary Advest Inc. were negligent, misrepresented information, breached their fiduciary duty and their contract with the investors.

The securities fraud arbitration process allowed the investors to recover their losses and they were also awarded interest that dated back to November 2005.

With the collapse of the mortgage market and the financial industry, a growing number of stock broker arbitration lawsuits have been filed through FINRA over the past year. As many as 5,000 arbitration claims were filed in 2008, with more cases filed during the first 10 months of the year than were filed for the entire year of 2007.

A number of cases have been filed by unsophisticated investors who lost money that they thought was in secure and relatively low risk investments, such as Schwab YieldPlus fund, Regions Morgan Keegan Bond Funds, Lehman Brothers Structured Notes and other funds that were particularly hard hit by heavy investments in risky mortgage-backed securities that were hurt by the collapse of the sub-prime mortgate market.


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