Merrill socked with $39.8M arbitration ruling

In one of the single largest securities arbitration awards ever, Merrill Lynch & Co. Inc. has been ordered pay $39.8 million to a group affiliated with the Freemasons.

In one of the single largest securities arbitration awards ever, Merrill Lynch & Co. Inc. has been ordered pay $39.8 million to a group affiliated with the Freemasons.
The arbitration award, handed down by a three-member panel of the New York- and Washington-based Financial Industry Regulatory Authority Inc., ruled March 16 that Merrill Lynch of New York is liable for $30.6 million in compensatory damages — plus interest — to the Trustees of the Masonic Hall and Asylum Fund in Utica, N.Y.
The interest on the claim dates back to November 2005 and totals $9.2 million.
The fund alleged that Merrill Lynch and its subsidiary broker-dealer Advest Inc. of Hartford, Conn., committed negligence, breached their contract and fiduciary duty, and also misrepresented information about the SPhinX Managed Futures Index Fund LP.
Sphinx was a privately held fund of a business unit of the defunct commodities trader Refco Inc. of New York and was one of a group of funds that promised investors returns tied to the performance of the Standard & Poor’s Hedge Fund Index, according to published reports.
It’s one of the largest Finra arbitration awards ever, said Richard Ryder, editor of the Securities Arbitration Commentator, based in Maplewood, N.J.
“It’s easily top 10, perhaps top five,” he said, adding that other awards may have been bigger, but were unpaid by a defunct firm or broker.
It was not clear how Advest or Merrill Lynch brokers sold the Refco fund to the non-profit group.
The Finra award gave scant detail about the case, and the lawyer for the Masonic group, Brian J. Butler, did not make a copy of the group’s suit against Merrill Lynch available.
A Merrill Lynch spokesman, William Halldin, said the firm is “disappointed with the decision, which we believe runs counter to the facts and the law.”
“This case arose from investments that predated Merrill Lynch’s acquisition of Advest,” Mr. Halldin wrote in an e-mail.
“The panel did award us rights to claims in the SPhinX Managed Futures insolvency and bankruptcy proceedings, and related matters, and we will pursue those claims.”
Merrill Lynch’s acquisition of the Advest Group Inc. in 2005 at the time was widely reported as one of the most difficult and contentious deals in recent years, with Advest brokers leaving in droves.
Mr. Halldin added that the events in the claim occurred before Merrill bought Advest, therefore a Merrill Lynch adviser was not involved in the matter.