Merrill Lynch Wins ARS Appeal

Court rules firm sufficiently alerted investors to its auction rate securities practices.

Bank of America Corp.’s Merrill Lynch unit won an appeal of a ruling dismissing an investor suit over auction-rate securities.

A federal appeals court in New York ruled today that Merrill Lynch provided the investor, Colin Wilson, with sufficient information about its practice of propping up auctions in the securities by submitting its own bids, barring his claim that Merrill misled investors about the securities’ liquidity. Wilson had appealed a lower court’s dismissal of the suit.

“Merrill’s particular disclosures sufficiently alerted investors in Merrill ARS of the likelihood that the interest rates and apparent liquidity of these ARS reflected Merrill’s own intervention in these auctions rather than the natural interplay of supply and demand,” U.S. Circuit Judge Robert Katzmann wrote on behalf of a three-judge panel.

Wilson, who sought to represent a class of investors in Merrill’s auction-rate securities, bought $125,000 of the securities from an online brokerage in 2007. In 2008, Merrill and the other major dealers in auction-rate securities withdrew their support for the auctions, causing most of them to fail. Wilson claimed he and other investors were left with securities they couldn’t sell.

Auction-rate securities are municipal bonds, corporate bonds and preferred stocks whose rates of return are periodically re-set through an auction.

Bill Halldin, a spokesman for Charlotte, North Carolina- based Bank of America, said in an e-mail that the company is pleased with the court’s decision. Bank of America bought Merrill in 2009.

The case is Wilson v. Merrill Lynch & Co., 10-1528, Second U.S. Circuit Court of Appeals (New York).

 

Bloomberg

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