State sues Merrill Lynch over stock deal

//July 29, 2009

Milgram: Company offered Âmisleading informationÂ about its financial healthA state agency bought $300 million of Merrill Lynch & Co. stock based on bum information, according to a lawsuit filed against the Wall Street firm, said state Attorney General Anne Milgram.

The New Jersey Division of Investment bought the preferred stock Âbased on misleading information about the firmÂs financial condition,Â Milgram said. ÂThe state relied on Merrill Lynch to provide the whole story, and the company failed to do so.Â

Merrill Lynch engaged in Âbreach of contract, negligent misrepresentation and breach of the covenant of good faith and fair dealing,Â Milgram said.

In its Securities and Exchange Commission filings, Merrill Lynch understated its exposure to Âhigh riskÂ corporate securities, and in the fourth quarter of 2008, it posted a $15.3 billion loss, the suit noted.

If the state Division of Investment Âhad known MerrillÂs true financial condition,Â it would not have bought the stock in January 2008, according to the suit, which seeks an unspecified amount of compensatory damages. It was filed Tuesday in the State Superior Court in Hudson County.

Bank of America Corp. also was named as a defendant. The Charlotte, N.C.-based institution bought Merrill Lynch in a transaction that was finalized earlier this year.

Merrill distributed Âinaccurate and incomplete financial reports, understated financial risks to which it was exposed, and violated generally accepted accounting principles,Â according to the suit. The complaint also claims that investment firm TPG-Axon Capital got preferential treatment in the deal, contrary to certain assurances Merrill allegedly gave to New Jersey.

Lester J. Levy, a New York attorney with Wolf Popper LLP who is on the team representing the state, declined to comment on the suit. Bank of America spokeswoman Shirley Norton also refused comment.

E-mail Martin C. Daks at [email protected]