The U.S. Securities and Exchange Commission (SEC) will take action against brokerage firm Merrill Lynch, claiming that an investment that declined by about 95 percent in value was marketed using techniques its financial advisors said were “borderline crooked.”
The upcoming case centers on the risks of “structured notes,” which are securities that banks build out of derivatives and sell to retail investors. It also involves a legal dispute between Merrill Lynch and two brokers who reportedly sold these structured notes to their clients.
After receiving complaints from their clients about the plunging value of the notes, the brokers secretly recorded phone calls with Merrill Lynch executives. Shortly thereafter, they left the firm for positions at UBS Group AG, and then filed a whistleblower claim with the SEC.
The structured notes, officially called Strategic Return Notes, were reportedly sold over the course of several months in 2010. The firm raised about $150 million on the notes, which ended up losing value at a rapid paced shortly after they were sold.
An attorney representing investors who are filing Financial Industry Regulatory Authority (FINRA) claims against Merrill Lynch said publicly that firms are incentivized to develop complicated and untested structured investments, which are inherently risky. The recorded phone calls involving the brokers and Merrill executives have been cited in claims against the brokerage firm filed in March and April.
Whistleblowers like the brokers in this case can do a great deal of damage to the reputation of a business or organization. For further information and guidance on how you should respond to these claims, meet with an experienced Dallas attorney at Whistleblower Law for Managers.