Bobby Hayes Wins $1.4 Million In Suit Against Merrill Lynch Over CDO Loss

(Adds details)

By Suzanne Barlyn

Feb 1 - Bank of America Corp's Merrill Lynch unit must pay nearly $1.4 million in damages to a wealthy investor who alleged that collateralized debt obligations he bought turned out to be worthless at the time of purchase, according to an arbitration ruling.

Bobby Hayes, a Nevada-based retiree and entrepreneur, filed the case in 2011, alleging breach of contract, consumer fraud, and other misdeeds, according to a ruling by a Financial Industry Regulatory Authority panel dated Tuesday.

Hayes' claim stemmed from an investment in risky collateralized debt obligations he bought from the former Banc of America Securities LLC in 2008, according to Thomas Bradley, a Reno, Nevada-based lawyer who represented Hayes in the case. The unit is now part of Merrill Lynch.

Collateralized debt obligations, or CDOs, are securities backed by underlying pools of bonds or loans. The investments, while risky, are "not uncommon" among "qualified investors," who must meet certain net worth and income standards established by the U.S. Securities and Exchange Commission, Bradley said. Hayes, a high net worth investor, met those standards, said Bradley.

Merrill purchased the loans backing the securities between November 2006 and June 2007, according to Bradley. Hayes, of Incline Village, Nevada, argued that the loans lost significant value while held in the company's inventory. But the company sold the loans to Hayes and other investors for the price it paid, instead of what they were worth, Bradley said.

Hayes was unaware that the securities were under water when he bought them, Bradley said. Hayes asked the panel for $883,122 in damages, plus other relief, including legal fees.

The panel awarded Hayes $883,122 in rescissionary damages - a state securities law remedy that allows money returned to an investor in exchange for giving back the securities. The panel also awarded $251,668 in interest and $218,344 in legal fees and $23,500 in costs, according to the ruling.

Merrill Lynch spokesman William Halldin denied that the securities were worthless at the time of sale and said Merrill disagrees with the panel's decision. "Following the purchase of this investment, the market experienced extreme volatility," he said. (Reporting by Suzanne Barlyn and Jochelle Mendonca; Editing by Walden Siew, Phil Berlowitz)

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Comments

[TaiJi2]

03:18 PM on 02/02/2012

"Following the purchase of this investment, the market experienced extreme volatility," he said

Uh huh. And of the Concord's last flight: Following takeoff of this jet, the flight path experienced extreme volatility.

Both read: it crashed and burned.

[nanreh]

02:59 PM on 02/02/2012

ITEM
Bush's attorney general Michael Mukasey has a new gig in which to ply his talents: making it easier for corporatio­ns to bribe foreign government­s. The Foreign Corrupt Practices Act (FPCA) is intended to stop U.S.-based multinatio­nal corporatio­ns from bribing foreign government­s. Unlike the previous administra­tion's Department of Justice, under Mukasey, the Obama DOJ is enforcing the law.

AS LONG AS THE CROOKS=RICH BANKSTERS HAVE MONEY TO HIRE LOBBYISTS.................

[anonymous67]

01:34 PM on 02/02/2012

The criminality is abundantly evident. WHEN will our laws be enforced? WHEN will the Department of Justice prosecute??? And if not, when can we expect to see prosecutions for obstruction of justice and public corruption?

[FaceReality2]

11:36 AM on 02/02/2012

"[Merrill] sold the loans to Hayes and other investors for the price it paid, instead of what they were worth . . . . Hayes was unaware that the securities were under water when he bought them"

The bankers misled someone? But the Republicans say bankers are so honest they can regulate themselves.