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NASD Panel: Merrill Liable for Breach of Fiduciary Duty

5/15/2003

Dow Jones Business News

A National Association of Securities Dealers arbitration panel ordered the nation’s largest brokerage firm, Merrill Lynch & Co., to pay one of its investors $331,004 for breaching its fiduciary duty and not supervising one of its representatives.

In a press release Thursday, the law firm representing the investor said the award represents a full return of losses for Gene Hines, plus interest at 10% and a refund of his NASD costs.

During arbitration, Hines alleged that Merrill Lynch induced him to buy an unsuitable variable annuity in his IRA account and failed to honor a 10% stop loss discipline that was promised to protect his stock investments.

Hines’ lawyer, Ryan Bakhtiari, argued that public customers nearing retirement often fall victim to the lure of a guaranteed rate of return promised by a variable annuity contract. “Merrill Lynch never told Mr. Hines that he would have to wait nearly 20 years to see this ‘guarantee’ materialize,” Bakhtiari said.

The panel also found Merrill liable for not supervising its registered representative, Milan Vukovic, who was fired from the securities firm for his conduct in connection with handling Hines’ account.

A Merrill spokesman said the company wouldn’t comment on the case’s outcome at this time.

Merrill is among the ten Wall Street firms that recently agreed to a $1.4 billion settlement, consisting of fines and reforms, that would help resolve allegations that they issued biased ratings on stocks to lure investment-banking business. Merrill’s former analyst Henry Blodget also settled with regulators regarding that case without admitting or denying allegations.


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