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Home > Cases > Merrill Lynch > State of Massachusetts Sues Merrill Lynch Over Subprime Mortgage Loss

State of Massachusetts Sues Merrill Lynch Over Subprime Mortgage Loss

Merrill Lynch appears to have violated state law when, in early 2007, the firm sold $13.9 million of unsuitable, subprime CDOs to the City of Springfield without proper disclosure. Within months, the investments' book value sank 91%, to $1.2 million, with no hope of recovery. Merrill Lynch thought they had put the trouble behind them when they agreed to reimburse the City of Springfield for the original value of the CDOs, plus attorney fees, on January 31.

But on February 1, Massachusetts Secretary of State William Galvin filed official state charges against Merrill Lynch. The complaint states that “these highly risky and esoteric CDOs were unsuitable” and that “Merrill Lynch did not properly disclose to the City the risks of owning these CDOs.”

Merrill Lynch is accused of violating the Massachusetts Uniform Securities Act. The CDOs that went into the Springfield account without their knowledge were “CDOs collateralized by other CDOs,” often called “CDO-squared.” They're made up of pieces of other CDOs along with complex products called “synthetic securities” — a far cry from the straightforward, conservative investments required by law in this case.

Situations like this one are springing up across the country. We are finding that many government agencies, cities and towns, not-for-profits, small insurance companies, pension funds and endowment funds have been inappropriately burdened with subprime investment instruments. Now that the market for these securities has disintegrated, the full extent of broker and underwriter misconduct is coming to light. Stay tuned — we'll keep you posted as facts unfold.

In the summer of 2007, our group, who individually and collectively have extensive experience in representing investors against Wall Street, formed an affiliation. Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses. Contact us.


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