Merrill Must Pay $1 Million To Two Venezuelan Sisters
May 12, 2011
NEW YORK -- Merrill Lynch & Co. must pay two former clients nearly $1 million after an arbitration panel found that the firm churned the investors' account and put them into unduly risky investments. The ruling, handed down this month by a National Association of Securities Dealers panel, involves two elderly Venezuelan sisters, Amalia Carmon Robinson and Assunta Robinson Meredith. The two investors purchased collateralized mortgage obligations on margin, at Merrill Lynch's recommendation, according to public records. Collateralized mortgage obligations, or CMOs, are bonds created by taking the cash flow from mortgage loans and slicing them into small parts to offer investors varying yields and different levels of risk. CMOs can be highly volatile because they are subject to fluctuations in interest rates and the refinancing patterns of the underlying mortgages. Ms. Robinson and Ms. Meredith, who are both in their 70s, opened a $2 million account with Merrill Lynch and began investing in CMOs in the fall of 1991. Before then, the two sisters had invested only in certificates of deposit since 1980, said Pierre J. Stroman, an attorney for the clients. ``This wasn't a case of people shopping around -- looking for 12% or 15% returns,'' said Mr. Stroman, who added that his clients are citizens of Venezuela and neither speak nor read English. Mr. Stroman said his clients kept their savings in American dollars because they were concerned about currency problems in Venezuela. But when the banking crisis developed in the U.S. in the late 1980s, the two women began to seek alternative investments since the Federal Deposit Insurance Corp. guarantees bank deposits only up to $100,000. In the fall of 1993, the sisters received a letter from their Merrill Lynch broker saying the firm had a new program to lend them 75 cents on the dollar to buy CMOs. The investment was touted as risk-free and investors were promised a 12% return, Mr. Stroman said. But soon after the clients leveraged their portfolio by buying on margin, interest rates rose. By the time Ms. Robinson and Ms. Meredith liquidated their account in October 2009, the value of their portfolio declined to about $950,000 from $2 million. In their arbitration claim against Merrill, which was filed in January 2010, Ms. Robinson and Ms. Meredith sought $1.27 million in damages and interest. At a series of arbitration sessions held in Tampa, Fla., Merrill Lynch argued that the sisters invested in CMOs for more than two years without complaint. Merrill said its former clients complained only after the market value of their securities declined as a result of the Federal Reserve Board's decision to raise interest rates in 2009. The three-member panel at the NASD agreed. It denied Merrill's claim for damages against Mr. Newman and ordered the firm to pay Ms. Robinson and Ms. Meredith $757,850 in compensatory damages, $101,047 in interest and $75,000 in attorneys fees, for a total award of $933,897. A Merrill Lynch spokesperson wasn't immediately available to comment. Attorneys for the brokerage house, Alexander J. Russ and Berenice Edgardo, of Morgan Lewis & Bockius in Miami, did not immediately return a phone call. Securities law experts said Merrill Lynch can request that the award be set aside or ``vacated.''
