More claims filed against brokers over Microsoft stock option advice

December 4, 2003
By Cydney Gillis

REDMOND — The lawyers at Klayman & Toskes are looking for clients.

The law firm seeks Microsoft employees who feel the brokerage houses that handled their stock options gave them a bum steer after the market crash of 2000, costing them millions of dollars.

In 2001 and 2002, Microsoft employees filed $100 million in securities claims against Merrill Lynch and Salomon Smith Barney, many still pending. Klayman & Toskes led the charge — and is now pursuing a “second wave” of claims that the law firm is helping create.

In a press release issued Wednesday, the Florida-based firm noted that one pending claim seeks $10 million for alleged misconduct at the Seattle and Wenatchee offices of Merrill Lynch.

The upshot of the complaint — and others like it, which are filed with the New York Stock Exchange and the National Association of Securities Dealers — is that Merrill Lynch failed to advise Microsoft employees to buy other stock.

In the days of the dot-com boom, the Redmond software maker’s stock was considered a sure thing that could only go up in price. As a result, the brokerages loaned money to many Microsoft employees to buy company-issued stock options — using the value of the options as collateral.

Many employees then held onto the stock without investing in anything else. By December 2000, after Microsoft shares plummeted below $40, those who had borrowed were wiped out — something that shouldn’t have happened, Klayman said.

“You would not use leverage on a concentrated position,” Klayman said. “It defies economic theory.”

He added that Merrill Lynch has a desk brokers can call for advice on clients who hold primarily one stock.

“It was free and available,” Klayman said of the service. “It was just a matter of being lazy and negligent.”

He declined to discuss any settlements, from which the law firm collects a third.

Merrill Lynch spokesman Bill Haldin said the brokerage disagrees with the claims.

Merrill provides clients with extensive explanations about borrowing money to buy stock, Haldin said.

Despite the company’s advice, he added, it’s ultimately up to investors what they do with their holdings.

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