A couple has filed a claim against Merrill Lynch seeking $5 million in damages because they say their accounts were overloaded with preferred stock.
Klayman & Toskes, a law firm based in Boca Raton, Fla., announced today that it filed a securities arbitration claim with the Financial Industry Regulatory Authority's Department of Arbitration on behalf of the couple, who are residents of the Bahamas but held accounts with Merrill's Boca Raton office, where they granted a financial advisor discretionary authority to manage their accounts.
Bill Halldin, a Merrill Lynch spokesman, said today that the firm declined to comment.
Instead of recommending a suitable investment strategy to reduce the investors' risk, Merrill Lynch engaged in an aggressive strategy of purchasing numerous financial preferred stocks, thereby overconcentrating the couple's accounts, one of which had been pledged as collateral against loans taken out through Merrill Lynch, Klayman & Toskes says. The preferred stocks included those of Deutsche Bank, Bank of America, Credit Suisse, Ambac Financial, ING Groep N.V., SunTrust Capital and Barclays, it adds.
The claim alleges that Merrill Lynch failed to disclose to the couple the risks of preferred stocks and overconcentration, and that their accounts faced a substantial amount of risk should the financial sector decline in value. Following the market decline in the financial sector during 2008, the couple suffered significant investment losses and eventually received a margin call of about $2 million.