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Merrill Lynch Ordered to Pay $2.1 Million in Arbitration

PR Newswire

An NASD arbitration panel ordered Merrill Lynch (NYSE: MER-news) to pay two former customers more than $2.1 million stemming from the company’s sale to them of unsuitable securities, excessive trading of their accounts and failure to supervise. Brothers Alex and Michel Horvat alleged that Win Troung, a broker in the Merrill Lynch Beverly Hills office, disregarded their investment objectives and risk tolerance by following an irrational pattern of trading high tech securities in 2000.

Alex Horvat opened an account with Merrill Lynch following the sale of his business with specific instructions to protect the fruits of his labor against any significant decline. His brother Michel followed soon after. According to Robert A. Uhl, who argued the case at hearing: “Merrill Lynch promised our clients that their investments would be protected by use of a ‘stop loss discipline’ which was never put into place. Instead, the company allowed a young and inexperienced broker to excessively trade the accounts without any meaningful supervision.”

The panel heard testimony that the losses in these accounts occurred in approximately six months.

“Merrill tried to shift the blame to their customers and the falling tech market instead of accepting responsibility for their own mismanagement. In making this award the panel sent a message of accountability to the firm,” added Ryan Bakhtiari who tried the case with Uhl.

This case demonstrates that the industry’s finger pointing at market forces as the cause of the loss rings hollow.

“As fiduciaries,” Mr Uhl argued to the panel, “the firm had the duty to guard against the well known possibility that the market would go down thereby resulting in damages.”