Join the queue if you are a plaintiff lawyer considering filing a proposed class action lawsuit against Merrill Lynch’s parent company, Bank of America, related to allegations of deceptive trading practices in the commodities markets.
Multiple plaintiff lawyers filed at least three such lawsuits in recent weeks after federal prosecutors secured a June 25 deal with another BofA unit, Merrill Lynch Commodities, to pay $25 million to resolve their investigation into alleged deceptive trading practices.
The Commodity Futures Trading Commission also unveiled on the same day a separate settlement with the Merrill Lynch unit, requiring it to pay an $11.5 million civil fine, cooperate with any related investigations, and remediate practices.
Two former Merrill Lynch commodities traders who have indictments pending against them allegedly engaged in a multi-year scheme to mislead the market for precious metals futures contracts traded on the Commodity Exchange Inc. (COMEX), according to the statement announcing the settlement from the U.S. Department of Justice.
Specifically, those traders placed fraudulent orders for precious metals futures contracts, which they intended to halt before execution, the prosecutors allege. The tactic is known as “spoofing” — manipulating “the market by creating the false impression of increased supply or demand and, in turn, to fraudulently induce other market participants to buy and to sell futures contracts at quantities, prices and times that they otherwise likely would not have done so,” the DOJ press release states.
Within two days of the announcement of Merrill Lynch’s settlement with the prosecutors and the CFTC, plaintiff lawyers from White Plains, N.Y.-based Lowey Dannenberg had filed a proposed class action lawsuit on behalf of other futures traders and firms that employ them. That lawsuit also named Morgan Stanley, where one of the traders named in the prosecutor’s allegation had moved after leaving the Merrill Lynch commodities unit, according to the lawsuit.
Within a week of the settlement, other plaintiff lawyers from Manhattan-based Scott +Scott had filed another proposed class action on behalf of investors.
A Morgan Stanley spokesperson declined to comment on the lawsuits, as did a BofA spokesperson. But regarding the resolution with the federal prosecutors, he wrote in an email: “We are disappointed by the conduct of the former Merrill Lynch Commodities employees named in this matter and have cooperated with the investigations.”
What do the fines and ensuing lawsuits spell for the future of Merrill Lynch Wealth Management financial advisors? Nothing, “unless it starts making news in the mainstream press and clients start asking,” predicts Danny Sarch, a recruiter and president of White Plains, N.Y.-based Leitner Sarch Consultants.