TRENTON
– Attorney General Anne Milgram announced
today the filing of a lawsuit against Merrill
Lynch & Co. charging that it sold New
Jersey’s Division of Investment $300
million in preferred stock based on misleading
information about the firm’s financial
condition. In addition, the suit charges that
Merrill Lynch subsequently gave at least one
investor in that stock offering better terms
on the conversion of those shares than New
Jersey, despite representing that all investors
would be treated equally.
“The State relied on
Merrill Lynch to provide the whole story and
the company failed to do so. Instead, our
lawsuit charges that Merrill Lynch made misrepresentations
about its financial health and engaged in
the preferential treatment of other investors
who, ostensibly, were investing on the same
terms as the State,” said Attorney General
Milgram. “This case is about holding
Merrill Lynch accountable for its conduct,
and for recovering important investment funds
on behalf of the citizens of New Jersey.”
Filed today in the Law Division
of State Superior Court in Hudson County,
the complaint charges Merrill Lynch with breach
of contract, negligent misrepresentation and
breach of the covenant of good faith and fair
dealing. Also named as a defendant is the
Bank of America Corp. Bank of America acquired
Merrill Lynch in a merger finalized earlier
this year, and is named in the lawsuit as
a successor entity.
According to the State’s
complaint, Merrill Lynch distributed inaccurate
and incomplete financial reports, under-stated
financial risks to which it was exposed and
violated generally accepted accounting principles.
Largely on the basis of this misleading information,
the State agreed in January 2008 to purchase
$300 million worth of preferred, “convertible”
stock. Under terms of the sale, the State
would receive a 9 percent dividend on these
preferred stock holdings.
In July 2008, Merrill Lynch
sought to reset the terms of the stock deal
and the State accepted. Under terms of the
new agreement, the State would no longer receive
a 9 percent dividend on its investment, but
its preferred stock holdings would be converted
to 11 million shares of “common”
Merrill Lynch stock at an exchange ratio of
$27.68 per share.
According to the State’s
complaint, Merrill Lynch informed New Jersey
that all other members of an investment group
that had bought the original “preferred”
stock -- and who had then agreed to the July
2008 common stock conversion -- would receive
the same investment terms.
In fact, the lawsuit charges,
at least one investor received a preferential
deal that included a more favorable exchange
rate and continued retention of preferred
stock with a dividend.
The State’s lawsuit
charges that the reality of Merrill Lynch’s
financial situation emerged only after Bank
of America Corp. acquired Merrill Lynch and
acknowledged -- in January of this year --
that the company had recorded a massive, $15.31
billion loss in the fourth quarter of 2008.
The State’s lawsuit
was handled by the law firms of Cohn Lifland
Pearlman Herrmann & Knopf LLP of Saddle
Brook and Wolf Popper LLP of New York, N.Y.
Assistant Attorney General Carol G. Jacobson
and Deputy Attorney General Samuel Cornish
of the Division of Law handled the matter
on behalf of the State.
#
# # |
