Professional Documents
Culture Documents
STATEMENT OF CLAIM
their counsel, respectfully present and prosecute this Statement of Claim, based
on actual knowledge as to themselves and their own actions and upon information
and misleading representations and omissions by Merrill Lynch, Pierce, Fenner &
Smith, Inc. (“Merrill”) in its sale to Amegy of over $140 million of auction
market preferred securities. While marketing these securities as safe and liquid
knew, but did not disclose to Amegy and the public, that there was no sustainable
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market for the securities and, without Merrill’s pervasive support, the auctions
used to provide liquidity to holders of the securities would and eventually did fail.
securities (“ARS”) were liquid and offered a safe return higher than money
market funds. To secure its position in the lucrative ARS market, it used its own
capital to ensure that auctions did not fail and touted the 20-year track record of
rare failures, thus creating and maintaining the reasonable belief among innocent
purchasers that there was a highly liquid market for these securities. Due to the
practice of Merrill and other banks placing support bids for decades prior to mid
2007, there had been only a handful of failed ARS auctions that prevented
investors from accessing their principal; from 1984 until the end of August 2007,
there were only 44 failed auctions -- an average of less than two per year.
the extent of Merrill’s secret propping up of the ARS market. For the period
January 3, 2006 through May 27, 2008, nearly 6000 ARS auctions for which
Merrill was the sole lead dealer would have failed but for its support. The
just such a meltdown. According to the SEC, Merrill “continued to tout the
liquidity risks in the weeks and months preceding the collapse of the ARS
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market.” Even worse, Merrill’s aggressive marketing of the securities as safe,
liquid investments continued as it debated and began withdrawing from the ARS
sales managers, including on its auction desk, routinely to influence and pressure
its research group, including through improper sharing of sensitive private data.
This resulted in biased published research that endorsed the safety and quality of
auction rate securities and urged investors to buy the securities, even though
Merrill knew that the securities were liquid only as long as it decided they would
be so. When sales personnel, including on its auction desk, did not agree with the
tone of a published research piece, Merrill allowed them to insist that the report
be retracted and replaced with a sales-friendly piece. Merrill permitted its sales
team to convey to its research group sensitive data concerning inventory levels,
auction rate securities. Merrill even involved its research team in efforts to reduce
the ARS market has not gone unnoticed by government authorities. Among other
agencies, the U.S. Securities and Exchange Commission, New York Attorney
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ARS practices of Merrill and others. These actions were “necessary,” according
Merrill settled with government regulators after damning facts emerged about the
improper interactions of its research and sales groups -- disclosures that prompted
the Massachusetts Secretary of State to file suit for violations of securities laws.
In the settlement, Merrill agreed to take certain steps to remedy the harm caused
by its actions, including to repurchase at par $12 billion in auction rate securities
other large investors, and to pay a $125 million penalty for its misconduct (the
second largest penalty imposed thus far on any auction market participant).
continue through early 2010, but it is materially incomplete. Excluded from the
buy-back settlement are innocent downstream brokers like Amegy, who bought
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direct retail customers and then sold them to Amegy clients, causing significant
incur losses from its attempts to ameliorate its clients’ liquidity problems through
such means as below-market rate loans and legal counsel related to the auction
market collapse. And while Merrill has rejected Amegy’s repeated requests for
recompense for itself and its clients, claiming that Amegy is a “sophisticated
amount of due diligence by even the most sophisticated investor could have
hid from the public, including Amegy, the truth about its role in the ARS market
and auction process. Having profited greatly, Merrill then abandoned the market
with their money frozen in illiquid investments. For that reason, an equitable
rescission of the $140 million in ARS sales that Merrill made to Amegy.1
Summary of Claims
securities and its true role in the ARS market violated state and federal securities
1
While Amegy purchased over $240 million of auction market preferred securities
from Merrill, which Amegy then sold to its clients, redemptions and refinancings
have restored liquidity to approximately $100 million of the purchases, leaving
the remaining $140 million in ARS purchases at issue in this matter.
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laws and Texas common law. Its conduct violated the prohibition against
manipulative and deceptive practices with regard to sales of a security, under the
Securities Exchange Act of 1934 and Texas Securities Act. Its misrepresentations
and omissions, which were intended to induce Amegy to enter into contracts to
both negligent and knowing, and violations of Texas’s statutory fraud provision
under the Texas Business Code. As a controlling person under the 1934 Act and
the Texas Securities Act, Merrill Lynch & Co. is jointly and severally liable for
securities, as well as damages for harm to its business reputation and customer
Merrill’s misconduct.
Parties
fastest growing and most respected banks in Texas, now with more than 85
locations in Houston, Dallas, and San Antonio. With assets in excess of $11
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investment services. It is ranked among the top Small Business Administration
lenders in the Texas region. Its investment products and services are offered
products and services for retail and institutional clients in Texas and other states.
12. Respondent Merrill Lynch & Co., Inc. (“Merrill Lynch &
Co.”) is among the world’s largest wealth management, capital markets, and
times relevant to this Statement, Merrill Lynch & Co. directed the management
and policies of Merrill. It also owns 50% of BlackRock, one of the world’s
portion of the auction rate preferred securities sold to Amegy at issue here. On
January 1, 2009, Merrill Lynch & Co. was acquired by Bank of America Corp. in
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institutional, government, and other clients and as a dealer in the purchase and
Operative Facts
maturity debt for companies, local governments, and other entities needing long-
term funds. The market for the securities expanded significantly during the
current decade, with Merrill and other large investment banks acting as
that behaved like a long-term bond for the issuer but resembled a short-term
security, such as commercial paper, for the investor. Specifically, auction rate
securities were long-term securities, typically 20 years or longer, but with interest
rates that were reset at fixed intervals through so-called Dutch auctions. These
interest rate resets were typically done at intervals of one, four, five, or seven
weeks, although other reset intervals were available. As designed, the periodic
auctions purportedly gave the bonds a high degree of liquidity comparable to very
short-term assets.
Another class of issuers was closed-end mutual funds, which used ARS debt as a
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way to enhance returns via leveraging. At auctions for these securities, rather
than an interest rate reset, the dividend payment was reset. It is these auction
the securities issue who wished to sell. Potential purchasers, including existing
holders who wished to reinvest, bid for securities by specifying both the quantity
of securities they wished to buy and the minimum interest rate they would accept.
The lowest rate that cleared the market was the “clearing rate.” The entire supply
interest rate at or below this clearing rate. If the auction process worked correctly,
it gave these securities a high degree of liquidity for investors, who could choose
cover the number of securities offered for sale. In such a case, the securities were
priced at a specified penalty rate. Failed auctions resulted in the investors not
ARS as vehicles to park short-term cash, and investors viewed them as such. One
of the keys to the rapid growth of this market was the belief on the part of
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investors and innocent downstream brokers like Amegy, fostered by Merrill’s
$330 billion. This represented one of the single largest investment markets in the
reaped tens of millions of dollars in annual profits from its ARS roles as broker,
profitable roles in the ARS market prompted Merrill routinely to breach internal,
industry, regulatory, and legal restrictions on its practices in this fast growing and
significant area.
major broker dealers, including Merrill, that had engaged in improper conduct
with regard to the ARS market for the period January 2003 through June 2004.
The SEC had concluded that Merrill and the others engaged in practices that were
not properly disclosed to the public and which violated the federal securities laws.
The core of the improprieties centered on the ARS auction process, including
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auctions, allowing customers to submit or change orders after auction deadlines,
favoring certain customers over others, and favoring issuers over customers.
23. Among other steps, the SEC issued an order directing that
Merrill and other violators change their conduct (“2006 SEC Order”). It required
the firms to cease and desist from continuing violations of the Securities Act of
material and current auction practices and procedures. Merrill’s penalty was the
the 2006 SEC Order regarding detailed ongoing disclosures about Merrill’s ARS
practices and procedures. Specifically, Merrill was ordered to provide within six
25. Merrill was directed by the 2006 SEC Order to fulfill its
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with respect to Purchasers, by including a written
notification with the trade confirmation, that a written
description of [Merrill’s] material auction practices and
procedures is available on a specified web page of
[Merrill’s] website accessible to such Holders and
Purchasers.
Its written notification was required to “be set forth prominently in such a manner
as to call it to the attention of the reader and also state that a written description of
[Merrill’s] material auction practices and procedures will be sent to the Holder or
26. In addition, within three months after the 2006 SEC Order
and continuing thereafter, Merrill was required to “at all times make a description
the 2006 SEC Order with respect to Amegy. Specifically, Merrill failed timely to
provide Amegy with a written description of its material auction practices and
manner required.
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C. Merrill’s ARS Business Was Admittedly Both Lucrative and
Rigged.
manager on $24.6 billion or 42% of the total market. Merrill operated its ARS
auction rate desk (“Auction Desk”) to act as a remarketing agent for the
securities; a sales force (“Sales and Trading”) to sell ARS to retail customers,
broker-dealers like Amegy, and other clients; and a research division (“Research
Department”) to assist the Auction Desk in marketing and placing the securities.
securities, who paid Merrill fees to underwrite and market the securities. As an
investment bank, Merrill generated significant fees from underwriting new ARS
issuances. Since 2001, Merrill underwrote $13 billion of auction rate preferred
and dividends that reset each 7 to 35 days at auction, as well as long-term debt
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instruments, issued by municipalities and student loan organizations with
maturities of 20-40 years and interest rates that also reset at auction.
securities due to concerns about their credit quality, Merrill purchased them into
its own inventory to make sure the auctions did not fail and to preserve its
maintain confidence in the auction market preferred securities product among its
own financial advisors, Merrill knew that the ARS market as a whole inexorably
Merrill Auction Desk, internally wrote, “Markets are shutting down bit by bit.
recommending to issuers to hold off on new issues for the closed-end fund
companies, as Merrill understood that the ARS markets could not handle new
supply. On August 20, 2007, she wrote in an internal email, “Before we commit
to any new business, lets give people the bad news about the choppiness in the
market and urge a bit of wait and see to gauge ongoing market appetite.” By
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August 21, “inventory creep” as a result of having to submit more and more
34. While its own ARS inventory was rising, the state of the
market was a topic of concern between Merrill and issuers of ARS. In August
2007, closed-end fund managers were writing to Merrill asking whether there was
sufficient demand for successful ARS auctions “given the recent market
volatility.”
significantly and its Auction Desk was fast approaching its internal limit of $1
billion of ARS for its own proprietary account. In an internal September 27 email
to John Price, Merrill’s head of Americas Credit and Trading, Constable noted
ominously: “We are shoveling as fast as we can. . . . Net, net. I think we should
continuing ARS concerns about “climbing” rates, a “negative” market tone, and
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She assessed the Merrill ARS inventory as surpassing $2.32 billion overall. Price
means possible.”
the extremely difficult time her Auction Desk had in successfully conducting
auctions for the day. She wrote of investor “scarcity,” “cheaply priced
inventory,” and “negative” market perceptions, making the “most positive” action
that Merrill had was “that we did not fail” two key auctions:
concerned about the ARS market, although the public would not know this until it
was too late. Up until then, certain Merrill lenders that financed its ARS
inventory had accepted the securities as collateral for the loans. Some of the
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lenders became uncomfortable with the liquidity of ARS, however, and they
stopped accepting them as collateral. Merrill never told its customers or the
entities that financed its ARS inventory no longer accepted certain of the
securities as collateral.
through the end of the year. On December 4, 2007, Price, Merrill’s head of Credit
YEAR END. THE DESK IS OVER IT’S [sic] TARGET BY $3BLN AND WE
Please be aware that the contagion that has engulfed all has
been especially harsh on the [auction market preferred
security] product. Previously it was the business that used
very little Balance Sheet with a high ROA [return on
assets]. . . . Inventory higher yesterday. Fighting hard to
get it down, Munis $1.3 bln, AMPS $1.8 bln.
surpassed its internal ARS inventory ceiling or that it was prepared to take
did Merrill’s desperation to push ARS onto the public as safe and liquid
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(iii) Merrill seeks to reduce ARS inventory through
aggressive marketing.
management reviewed the Auction Desk’s growing ARS inventory and instituted
approach was two-pronged: first, it sought to motivate its national sales force to
push more auction rate securities to its customers, including broker-dealers like
Amegy; and second, it used its Research Department to provide a distorted picture
of the true state of the ARS market and its role in the “contagion.”
42. Motivating the Merrill sales force. Its first approach was
to encourage its own financial advisor sales force to sell more ARS to the public.
This was accomplished through providing the Merrill sales team with more
informational sales calls with its national sales force. During the calls, Merrill
finessed the alarming weaknesses of the ARS market by not pointing out the
negatives relative to liquidity that its Research Department had flagged. Instead,
it gave its financial advisors a 180-degree false story to pitch -- that ARS market
conditions “have made things that were already attractive even more attractive”
and that the closed end fund ARS sector was “the conservative’s conservative
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43. In its internal sales calls, Merrill avoided mentioning the
then-existing risks of ARS auction failures and other market dislocation that could
likelihood that Merrill could and would choose to stop its support of the ARS
auctions that it managed in order to limit its own financial risk regardless of the
44. It was known within Merrill that its Sales and Trading Desk
was to work in concert with its Research Department to unload ARS. During a
national sales call, Constable told participants “that we are working in concert
with research to provide the best ideas and to give assurance as to the solidity and
assisting sales of ARS at this critical juncture. On at least two occasions, Sales
and Trading and the Auction Desk made direct, specific requests for the Research
Department to draft favorable research pieces regarding the ARS market to assist
its Financial Products Group, requested that Fran Faulkner in Research prepare a
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published “special edition” research report on the ARS market, to have “a better
Robert Tomeny requested from Kevin Conery, a senior director in the Research
Department, a published research piece on certain ARS that had auction failures:
“any chance you guys can update that old Centaur research pieces Bess and Stuart
something from Research to give to potential customers, that he “could send out
the Auction Desk, emailed a Merrill research analyst, to update him on the lack of
publishing a positive research piece, to reassure investors that ARS are “safe” by
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cash management alternatives. In the old “flight to T-
Bills”, the recurring conversation here on the AMS desk is a
line out of “Marathon Man” -- “Is it safe?” Any renewed
research focusing on the high quality of closed end fund
preferreds of ALL tax status, auction municipal bonds and
student loan banked bonds, wrapped around the value added
proposition with today’s rates would be extremely helpful.
advance notice of research to be published about the ARS market. For example,
early on August 9, 2007, Constable emailed Conery, the senior Merrill research
director, with a simple one-line query: “Research today?” Shortly after 7:30pm
that evening, after apparently not receiving a response, she followed up with
another email to Conery with four lines of question marks -- indicating the
urgency of her need to know about the upcoming research piece. As Constable
later admitted, Merrill’s Auction Desk should have been told about research only
Conery) issued a major piece on the ARS market, titled “Turmoil and Opportunity
in the Auction Market.” His report took pains to distinguish recent private-
who were “relatively unharmed as they have been largely active in the more
suggesting they were limited to obscure ARS issues, and openly endorsed buying
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auction rate securities as a way to “take advantage” of their good “value” and yet
Over the following weeks, the Merrill Auction Desk distributed the Conery report
sharing information that was supposed to be limited to their own internal use. In
fact, Conery had ongoing communications with Price, head of the Credit/Trading
prevent “the misuse of material non-public information” and to prevent “even the
Research, Sales [and] Trading,” among others, “to avoid the misuse of such
wall, while departments that receive inside information -- such as the Auction
Desk -- are on the “private” side of the wall. Among the “private” data not to be
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discussed between Sales/Trading and Research is the level or amounts of ARS
data during this period. According to Conery’s work notebook, Price gave him
inventory in October 2007 and that its “finance[s] are challenged.” On November
20, the day after the Auction Desk was directed to reduce ARS inventory, Conery
had a detailed discussion with Price about the specific breakdown of Merrill’s
ARS inventory position and its reduction plans. Moreover, from at least August
2007 through February 2008, Conery regularly was given Merrill’s daily sales
positions and the credits available to financial advisors selling the ARS products.
inventory problems and urgency to reduce it, the Research group continued to tout
the Auction Market.” The piece in question was published that day by Mauro and
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Fisher in Merrill’s Research Department. In comparing auction rate preferred
securities to another product, the piece noted that these securities had no “hard
puts” (a demand feature that assures investors of getting back par value at the
reset date), and therefore holders needed to rely on other buyers in the market to
redeem the securities at par. Upon reading the piece, Constable called Mauro to
about failures in a municipal market research piece when ARS failures at that
56. The next day, August 22, 2007, after Constable complained
to Price, Conery, and others, the Research Department retracted the report and
issued a replacement. The new report changed the overall emphasis of the piece,
that investors buy ARS. The Auction Desk had gotten just what it wanted -- more
vital marketing fodder. As Constable later noted, the new report and other
57. This incident had a lasting impact on ARS reports from the
negative market events and known risks, and highlighted the supposed ARS
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58. In December 2007, the Research group endorsed buying
ARS. The piece argued that “credit fears are largely misplaced in the auction
Desk were no secret within the firm. In fact, some members of the groups touted
described his service to the Auction Desk as “integral and well coordinated,”
his view, “helped to significantly improve liquidity and lower inventory levels.”
His self-review sums up the upside-down role that the Research Department had
reports about the true state of the ARS market, it issued reports intended to
about downgrades of firms that insure ARS issues: “We anticipate that if this
happens there will be a wave of selling in these issues that we will be unable to
support causing the auction to fail. If any of these issues fail one can make the
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assumption that it will spread to the other sectors of our market regardless of the
insurer or ratings.”
risk associated with certain auction market preferred inventory. One part of the
analysis dealing with the “risky preferred” ARS provided an “Option #3: Fail
future auctions”:
January 18, 2008 email, Constable internally emphasized, “we are about to get
Brothers had a number of ARS auctions fail the day before. In response to an
internal question from a Merrill banker with an issuer client who had concerns
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opinion, we have to let [the client] know that we feel the
auction market is going to get worse not better and they
would be best served exiting the market.
Merrill did not disclose its concerns that the ARS market “is going to get worse,”
and participants “would be best served exiting the market,” with its customers,
negative aspects of the securities. Between February 1 and 8, 2008, while Merrill
three published research pieces that advised investors to be confident in the ARS
market. Indeed, his February 1 piece opined, “For funds that investors need to
keep liquid, we continue to find the best value in auction market securities.”
market and left buyers with frozen investments, Conery wrote that he found ARS
rates “to be attractive” and was “impressed by the auction market’s resiliency in
stop supporting its ARS program and to allow the vast majority of their auctions
to fail the next day. Its decision to stop supporting ARS auctions was made solely
to cut its own perceived risk, not out of any consideration or analysis of the effect
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67. Merrill’s decision to withdraw entirely from the ARS
market coincided with the decision of other major auction rate banks to do the
the funds of holders of ARS became frozen, and a liquidity crisis ensued.
increasingly panicked about the state of the market and their ability to access their
money, many sought to sell their shares, further increasing the imbalance between
purchases and sales, making it difficult for the markets to resume functioning.
and the holders of the securities, auctions continued to fail on a widespread basis,
Banking to report that the “ARS market remains largely frozen and investors are
unable to access the funds they had put into securities that they thought would act
like cash.”
example, have high “penalty” rates for failed auctions encouraging redemption,
the same is not true of the auction market preferred products. Those securities
tend to have a significantly lower “penalty” rate for failed auctions, giving issuers
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71. And while holders of auction market preferred securities
deceptions and withdrawal from the market, banks like Merrill apparently
continue to get paid for their ARS services, as issuers reportedly pay fees for each
principal basis based upon the false and misleading representations Merrill made
to Amegy and others. Those ARS, which Amegy sold to its clients, have yet to be
Amegy that Merrill’s own proprietary inventory had reached or exceeded its limit;
that for years it had been placing supporting bids in thousands of auctions that
would have failed without Merrill’s bids; that it was taking steps to rid itself of its
the securities underlying the auction market preferreds it purchased from Merrill
and then sold to its clients. That analysis reassured Amegy that the securities
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were of good credit quality. But no amount of research or analysis could have led
Amegy to learn of Merrill’s deceptive marketing and support of the ARS market
74. In late 2007 and early 2008, consistent with its deceptive
marketing and sales approach to rid itself of its increasingly burdensome ARS
inventory, Merrill had its traders contact Amegy more frequently to point out the
Merrill’s auctions. The traders did not disclose that Merrill’s own proprietary
inventory had reached or exceeded its limit; that for years it had been placing
supporting bids in thousands of auctions that would have failed without Merrill’s
bids; that it was taking steps to rid itself of its inventory; or that it was considering
clients with illiquid ARS and significantly damaged its reputation and goodwill
marketed and sold. While Merrill has refused to repurchase the ARS bought by
Amegy and then sold to its clients, Amegy has taken steps to provide needed
liquidity to its clients. For example, Amegy Bank has provided below-market rate
loans to its clients who hold these illiquid ARS. It also has incurred legal
expenses as it works with its clients to right the wrong done by Merrill.
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E. Merrill’s Disclosures to Amegy Did Not Comply with the 2006
SEC Order.
with the 2006 SEC Order that resulted from its deceptions in the ARS market.
provide “not later than 6 months after the entry of this Order” a “written
customers who hold auction rate securities . . . and the issuers of such securities.”
78. After a diligent search of its files and consultation with its
personnel who handled Merrill transactions, Amegy has found no indication that
it received the mandated written description of practices and procedures, nor has
79. The 2006 SEC Order required that Merrill, “at or before the
completion of the applicable transaction, provide . . . all broker dealers who are
Order demanded that Merrill provide a “written notification with the trade
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made on an order confirmation: “Such written notification must be set forth
2006 SEC Order demonstrates that the notification was not “set forth prominently
ARS traders do not recall seeing such notifications on the trade confirmations,
and the trade confirmations themselves make clear why -- the sole reference to
Merrill’s practices and procedures was wedged between details of the dividend
rate and reset date and a notice that the security was callable. The notice was not
set apart by special type or font, nor even separated by punctuation from other
parts of the confirmation. This supposed notification fails to comply with the
specific procedural mandates for providing notice of its ARS policies and
procedures is only part of Merrill’s breach of that Order; its actual auction
policies and procedures disclosures, which were contained on Merrill Lynch &
concluded that Merrill “did not make adequate disclosures that the liquidity of
these securities was based on Merrill . . . supporting the auctions it managed when
there was not enough demand.” Yet Merrill has relied on the website links to
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disclaim responsibility for its misleading and deceptive conduct. It also claims
that Amegy is a “sophisticated investor” that should have known the secret risks
in buying ARS from Merrill. Neither argument holds water, and both are belied
their sophistication and despite the availability of the “disclosures” to the public.
the extent to which Merrill was propping-up the ARS market through bidding for
its own account. Time and again, Merrill emphasized the opposite to the public,
83. At best, the Merrill Lynch & Co. website conveyed that
Merrill “may submit a bid in an auction to keep it from failing, but it is not
obligated to do so” and that “there may not always be enough bidders to prevent
an auction from failing in the absence of Merrill Lynch bidding in the auction for
its own account.” This is not a truthful disclosure, considering that Merrill knew
the ARS market existed only because of its bids. The fact that 6000 auctions
would have failed over a period of thirty months without the support of Merrill
exposes the distortion in its website “disclosure.” In truth, Merrill was almost
always submitting bids to keep auctions from failing, and there almost never were
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First Claim
Violation of the Federal Securities Laws
(Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10-b(5))
the liquidity of ARS and the true nature of Merrill’s participation in the auction
contrary, that the ARS markets existed solely as a result of Merrill’s support bids,
Second Claim
Controlling Person Liability under the Federal Securities Laws
(Section 20(a) of the Securities Exchange Act of 1934)
Exchange Act of 1934 is liable jointly and severally with and to the same extent
as the primary violator to any person to whom the primary violator is liable,
unless the control person acted in good faith and did not directly or indirectly
within the meaning of Section 20(a) of the Exchange Act. By virtue of its 100%
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ownership of Merrill, Merrill Lynch & Co. had the power to and did influence and
control Merrill’s conduct, including the content and dissemination of false and
Third Claim
Violation of the Texas Securities Act
(Tex. Civ. Stat. Ann. Art. 581-33)
necessary in order to make statements made not misleading, is liable to the person
auction market preferred securities, Merrill made untrue statements regarding the
liquidity of ARS and the true nature of Merrill’s participation in the market.
that the ARS markets existed solely as a result of Merrill’s support bids, and that
Fourth Claim
Controlling Person Liability under the Texas Securities Act
(Tex. Civ. Stat. Ann. Art. 581-33)
under the Texas Securities Act is liable jointly and severally with and to the same
extent as the primary violator to any person to whom the primary violator is
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liable, unless the controlling person sustains the burden of proof that he did not
know, and in the exercise of reasonable care could not have known, of the
within the meaning of the Texas Securities Act. By virtue of its 100% ownership
of Merrill, Merrill Lynch & Co. had the power to and did influence and control
Merrill’s conduct, including the content and dissemination of false and misleading
Fifth Claim
Statutory Fraud
(Tex. Bus. & Comm. Code § 27.01)
92. A claim for statutory fraud lies where a party makes false
another party to enter into a contract for the purchase of securities, and the party
relies upon the false representations when entering into the contract. It does not
liquidity of the ARS market, while fully aware that the markets were liquid only
the specific purpose of inducing Amegy and others to enter into contracts to
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purchase ARS. Amegy, like others, relied upon Merrill’s misrepresentations
about the liquidity of the market when entering into the contracts. Had Amegy
been aware of the true nature of the ARS market, as known to Merrill, it would
not have purchased over $140 million in auction market preferred securities.
Sixth Claim
Common Law Fraudulent Inducement
material misrepresentation, which was false, which was either known to be false
when made or was asserted without knowledge of the truth, which was intended
to be acted upon, which was relied upon, and which caused injury.
liquidity of the ARS market, while fully aware that the markets were liquid only
specific purpose of inducing Amegy and others to enter into contracts to purchase
ARS. Amegy, like others, relied upon Merrill’s misrepresentations about the
liquidity of the market when entering into the contracts. Indeed, had it been
aware of the true nature of the ARS market, as known to Merrill, Amegy would
not have purchased over $140 million in auction market preferred securities.
Seventh Claim
Common Law Negligent Misrepresentation
that respondent made a statement of fact in the course of its business, the
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statement was false, respondent knew or should have known of the statement’s
falsity, claimant relied on the statement, and reliance on the statement caused
that they were not truly liquid, and that without Merrill’s constant supporting bids
in the auctions, thousands of auctions would have failed. Amegy relied upon
million of them from Merrill, and that reliance caused harm to Amegy.
respectfully request that, after a full and final evidentiary hearing, they be
awarded rescission of the challenged sales, all of their damages, and interest,
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e. Reasonable and necessary attorney fees for this arbitration;
Claimants reserve their right to amend and supplement this Statement of Claim, as
R. Paul Yetter
Kimberly L. McMullan
Yetter, Warden & Coleman, L.L.P.
909 Fannin, Suite 3600
Houston, Texas 77010
(713) 632-8000
(713) 632-8002 (Fax)
pyetter@yetterwarden.com
kmcmullan@yetterwarden.com
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