SEC Prepares Civil Enforcement Action Against SEC Merrill Lynch

SEC Merrill Lynch

In an article in the Wall Street Journal on Wednesday, June 22, 2016, it was announced that the Securities and Exchange Commission (SEC) is preparing a civil enforcement action against sec Merrill Lynch relating to the issuance of structured products investments in 2010. A structured product (oftentimes referred to as a structured note) is a debt obligation from the issuer. Still, the issuer’s obligation to repay the debt is linked to an underlying security, a basket of securities, interest rate, index, etc.

The issuers also often use various hedging techniques to limit their exposure, and these techniques can become costly during periods of market volatility. These investment instruments, once only available for institutional clients, have become increasingly popular in this low-interest rate environment because they are sold as providing attractive rates of return to retail clients. But these are often complex and risky products!

FINRA and the SEC have issued many warnings throughout the years, especially since the financial crisis, concerning the (1) suitability and complexity of the products; (2) a broker’s understanding of the product; (3) the firm’s due diligence on the particular product; and (4) the ongoing training and supervision of the sales of these products to retail investors, particularly senior investors and those who are dependent on a fixed income.

The structured products at issue in this article include Merrill Lynch five (5) year Strategic Return Notes that were linked to the S&P 500. Shortly after their issuance in 2010, there was a period of market volatility in 2011, causing Merrill Lynch to outlay greater than originally anticipated costs to hedge the firm’s obligation to repay the notes.

SEC Merrill Lynch Investigation

The SEC’s investigation into Merrill Lynch was triggered by two former financial advisors (now with UBS) whistleblower complaints filed with the SEC. The whistleblower complaints (which are confidential) basically allege that Merrill brokers provided misinformation from the firm concerning the cost to hedge, which was passed on to customers. Investors who purchased the structured notes experienced immediate and significant declines within the year from the date of purchase upwards of 95% in value, according to the WSJ article.

Merrill Lynch is not alone many well-known large broker dealers and investment banks have been issuing similar structured product investments for years: Barclays Capital, JP Morgan, Credit Suisse, Raymond James, RBC Capital Markets, UBS and Wells Fargo. In addition, small independent firms, such as ProEquities, also offer structured products to its retail investors.

The Investment Litigation Group is currently investigating cases relating to investments in structured products. The Investment Loss Recovery Team has had significant experience in matters involving some major broker dealers relating to structured product sales; and the firm’s current focus is on helping individual retail investors recover investment losses in connection with some of the practices outlined by the SEC in its claims against Merrill Lynch.

Suppose you have experienced any material losses in your portfolio, including any issues or losses related to your financial advisor or his/her firm failing to disclose the potential risks associated with your structured product investments. In that case, we are interested in reviewing these issues in more detail. Contact us today at and schedule a free case evaluation. We do not earn a fee unless we obtain a financial recovery for you.

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