By Edward Hayes
CCH WALL STREET
A former Microsoft employee is suing Merrill Lynch for what he believes was a bad investment strategy that cost him about $1 million. The case, which was announced earlier this week, will be heard before an NASD arbitration panel.
The plaintiff, who remained anonymous, opened his account in 1999 in a Washington state Merrill Lynch branch office. He wanted assistance in managing his Microsoft stock options. Instead, his account wound up losing $1 million.
Most of the problems occurred between 2000 and early 2001, according to the plaintiff’s attorney Lawrence Klayman, of the law firm of Klayman & Toskes, P.A. According to the suit, Merrill utilized a risky strategy of concentrating investments in only one discipline with little risk management or any supervision, Klayman said.
“You had an independent broker who was just focusing on gathering assets and did not know how to manage a concentrated portfolio,” he said. “And when you have a failure to supervise, then you run into problems.”
The suit alleges that this lack of supervision and a questionable strategy was a betrayal of the investor’s trust.
“The claimants’ trust and confidence in this relationship was predicated on their reliance upon Merrill Lynch to manage the risks associated with a margined, concentrated portfolio which was the result of the realization of a lifetime of service as a highly valued employee, through the exercise of non-qualified employee stock options,” the suit said.
The plaintiff is seeking $1 million in compensatory damages from the firm, which has yet to respond to the suit. The case will not be held in civil court, but before a three-person NASD panel. The panel is composed of two public officials and one from the financial services industry.
“So you know you are going to lose one,” Klayman said, adding that his concern is that the industry panelist may be reluctant to return money to an investor.
The process for the panel is the same as a trial in that both sides give their argument and the panel renders a verdict, which is binding. Since the suit is in the early stage, the panel has not been assembled yet.
The NASD proceeding is cheaper and more efficient than a civil trial. It is also a clause that all investors agree to arbitration whenever they open an account with a brokerage firm.