Galvin Charges Merrill Lynch With Fraud
Secretary of the Commonwealth William F. Galvin has filed a complaint charging investment bank Merrill Lynch, Pierce, Fenner & Smith Inc. with securities fraud.
The complaint, filed with the state Securities Division, seeks to order Merrill Lynch to make good on auction rate securities the firm sold to investors while concealing the instability of the ARS market itself, Galivn’s office said. If successful, Galvin’s order would also censure and fine Merrill Lynch and require the firm to make restitution to investors who had to sell their auction rate securities at a loss.
Debt Terms
According to Galvin’s office, Merrill Lynch aggressively sold auction rate securities to investors while also censoring its own research analysts to make sure they downplayed the significant market risks and instability associated with ARS investment. “They knew the auction markets were in trouble, but the investors were the last to know,” Galvin said in a statement.
A similar complaint was brought against investment bank UBS last month. UBS has agreed to pay the state $1 million in that case, state Attorney General Martha Coakley announced Wednesday.
Galvin said Merrill Lynch made profits of about $90 million on the auction market it falsely inflated between 2006 and 2007.
An auction rate security is a long-term debt issue that acts like a short-term issue because its interest rate is reset about every month. Interest on an auction rate security is typically paid either quarterly or every six months.
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