Merrill Lynch Auction Rate Securities

Merrill Lynch is a prominent international investment banking and wealth management firm which manages approximately $1.6 trillion in client assets. Founded in 1914, Merrill Lynch is now one of the largest corporations in the United States by revenue, ranking No. 30 on the Fortune 500. The firm is also a major player on the international stage, with offices in 40 countries.

In addition to being one of the world's leading securities traders and underwriters, Merrill Lynch also owns nearly half of BlackRock, an investment management company which handles over $1 trillion in client assets.

Merrill Lynch as Broker-Dealer

Merrill Lynch is notable for its impressive network of brokers, which was largely responsible for the firm's early growth and success. The strength of this network allowed Merrill Lynch to sell the securities it underwrote directly to brokerage firms in its network, instead of being forced to market the securities to independent brokers.

In the auction rate securities (ARS) market, Merrill Lynch acted as a broker-dealer. It sold the securities to potential investors, ran auctions at which the securities' interest rates were reset, and had the option to bid in auctions on its own behalf. Like other major broker-dealers, Merrill Lynch regularly bid in auctions to purchase unwanted shares of auction rate securities and prevent auction failures.

Merrill Lynch and the Auction Rate Securities Market Collapse

The ARS bubble burst in February 2008, as broker-dealer firms like Merrill Lynch abruptly ceased to bid at auction, stranding investors who were unable to sell their securities due to a lack of demand. In the wake of the market collapse, Merrill Lynch and several of its counterparts came under fire for allegedly fraudulent marketing practices in regard to auction rate securities.

At the heart of the issue was whether or not Merrill Lynch and other broker-dealers had misrepresented the liquidity of auction rate securities in order to attract buyers. Prior to the ARS market crash, Merrill Lynch listed auction rate securities on clients' statements under the section "Other Cash," portraying the securities as safe, liquid, cash-equivalent investments. In April 2008, however, two months after the ARS market froze up, Merrill Lynch recategorized ARS as "Fixed Income – Other."

Officials at Merrill Lynch acknowledged the change, but denied any wrongdoing. Investors disagreed; many have filed lawsuits or FINRA arbitration claims against the company.

If your finances have suffered a loss of liquidity due to Merrill Lynch auction rate securities, call 800-220-9341 today and speak with an auction rate securities lawyer about your case.