Merrill Lynch Slammed With $1.33 Million Verdict Over Fannie Mae Preferred Stock, Says Sonn & Erez

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FORT LAUDERDALE, Fla., Oct. 16, 2012 (GLOBE NEWSWIRE) -- The nationally recognized securities law firm of Sonn | Erez announced today that Merrill Lynch has been slammed with an award of $1,336,463 in favor of two former customers that alleged wrongdoing in connection with Merrill Lynch's solicitation of the purchase of Fannie Mae bonds in July, 2008, just before the US Government placed Fannie Mae in conservatorship and stopped all preferred dividend payments to buyers of Fannie Mae preferred stock (See FINRA Case No. 11-019048, Billings vs. Merrill Lynch).

"This award is significant in part because it involves Fannie Mae preferred stock, of which billions of dollars' worth were sold to investors all over the country," said Jeff Erez, a partner in Sonn & Erez and the trial attorney for the Billings. "We have learned that many retirees, like our clients, were pitched to buy Fannie Mae preferred stock as a 'safe' fixed income investment, which we think the evidence shows is false," added Erez. "Fannie Mae had significant financial problems, and even Merrill Lynch removed Fannie Mae from its 'Recommended Preferred List' of preferred stocks before it was recommended to my clients; therefore, we believe our clients were duped into believing it was a safe investment, but in fact was a risky investment," said Erez. "Any brokerage firm that pitched Fannie Mae as a safe, fixed income investment in 2008 failed their clients, in our opinion," added Jeff Sonn, of Sonn & Erez.

This arbitration award is also significant due to the fact that the arbitration panel made a finding that "Respondent [Merrill Lynch] is found liable for breach of fiduciary duty." The case centered around the Billings' allegations, among other things, that Merrill Lynch had recommended the purchase of Fannie Mae preferred shares as a "safe" investment, that the "U.S. Government 'stands behind' Fannie Mae" and that the Billings would not be charged a commission on the purchase. The Billings further alleged in their FINRA arbitration complaint that Merrill Lynch breached its fiduciary duty by failing to disclose to the Billings dire warnings about Fannie Mae, including but not limited to:

  • On February 22, 2008, five months before Merrill Lynch's recommendation to the Billings to purchase Fannie Mae, Merrill Lynch downgraded its rating on Fannie Mae common stock to a "SELL" (a total return expectation within a 12 month period of a negative return). Merrill Lynch also ascribed a High Volatility Risk Rating to Fannie Mae
  • In February 2008, Goldman Sachs and Merrill Lynch cut their rating on Fannie Mae to a "Sell", a rare action by brokerage firms;
  • On March 10, 2008, Barron's reported that, "Its balance sheet is larded with soft assets and understated liabilities that would leave the company ill-equipped to weather a serious financial crisis. And spiraling mortgage defaults and falling home prices could bring a tsunami of credit losses over the next two years that will severely test Fannies' solvency.
  • On July 11, 2008, the New York Times reported that the government was considering a plan to place Fannie Mae in conservatorship and that, "Under conservatorship, the shares of Fannie and Freddie would be worth little or nothing..."
  • On July 15, 2008, Moody's downgraded Fannie Mae preferred stock rating and is "raising the possibility that preferred stockholders could also lose, saying the companies' diminished 'financial flexibility' may lead to a potential suspension of preferred stock dividends."
  • On July 16, 2008, Merrill Lynch removed Fannie Mae preferred shares from its "Recommended Preferred List" due to ongoing significant concerns about the company.

In a unanimous verdict, the three arbitrators found Merrill Lynch liable for breach of fiduciary duty, and awarded the Billings a combined $1.33 million award.

This is the latest in a long string of victories for Sonn & Erez, representing customers who have lost money due to the negligence, fraud or breach of fiduciary duty by financial advisors, stockbrokers brokerage firms and insurance companies, recovering millions of dollars for investors.

For more information about this case or other investment loss related issues please contact one of the attorneys at Sonn & Erez. Sonn & Erez is a nationally recognized securities firm representing individual and institutional investors who are victims of financial advisor negligence, fraud, Ponzi schemes, and other investment related losses. For more information, please contact Jeffrey Sonn or Jeffrey Erez at 1-866-372-8311.

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CONTACT: Jeffrey Sonn, Esq. Jeffrey Erez, Esq. Sonn & Erez PLC 500 East Broward Blvd., Suite 1700 Fort Lauderdale, FL 33394 954-763-4700

Source:Sonn & Erez PLC