Merrill Supervision Questioned

 Merrill Supervision Questioned 

But wins on substantive claims in analyst and tech recommendation arbitration

STAHL v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., NASD ID #01-03505 (San Francisco, 2/11/04).

A Claimant’s “tech stock” and “analyst conflict” claims are rejected, but with a helpful explanation from the Panel that reviews some of the strengths of her claim and the flaws in her proof.

Claimant Stahl was “lured” to Merrill Lynch, the explanation begins, in the summer of 2000, at a time when the equity markets, and technology stocks in particular, were heading into a downturn. She held Cisco stock in her account, evidently as a consequence of exercising stock options, and was “lured” from Prudential “with promises of providing an appropriate retirement plan….”

The plan, while proposed in several forms, was never executed, a concentrated Cisco stock position was not sold, and $7 million in claimed compensatory losses resulted. Why? The Panel first deals with the “analyst conflict” allegations: “Although Claimant showed that Merrill Lynch analysts maintained high ratings of Cisco even as the market ‘bubble’ began to burst, she has not shown that the quality of this analysis fell below industry standards, even though there may have occurred inappropriate influence on the analysts by Respondents’ investment banking division. Nor did Claimant prove that she substantially relied on these Merrill Lynch reports in making her decisions.”

Were Respondents responsible through “negligence or other blameworthy reasons”? The Panel did not find the evidence persuasive and it makes the practical point that the broker “had more financial incentive to execute a plan – any plan – that generated trading commissions, than to just sit on Claimant’s account, and this motive suggests that it was Claimant who was delaying the execution of a retirement plan.”

On the other hand, Merrill Lynch comes in for some criticism on the supervisory side. There were some inconsistencies in the account documents that might have concerned branch management, yet “[n]o phone calls or letters were ever sent by Respondents’ branch manager to warn Claimant of the peril of her highly concentrated, leveraged position in a single technology stock.” This lapse is not enough to establish breach of an appropriate standard of care and the Panel expresses doubt that this particular “high-risk investor” would have been chastened by gentle warnings. The Panel dismisses all claims, but refuses expungement and orders Merrill to reimburse the Claimant for her filing fees. (SAC Ref. No. 04-02002)


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Mark J. Astarita is a veteran securities attorney representing investors and financial professionals nationwide in securities investigations and arbitrations. Have a question? Email him at, call his office at 212-509-6544, or visit The Securities Lawyer

Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.