FINRA Panel Orders Merrill Lynch to Pay $1.3M Award for Selling Preferred
Shares of Fannie Mae Stock Despite Warnings of Stock's Risk
Last week, a FINRA arbitration panel ordered Merrill Lynch to pay a $1.3
million arbitration award to a couple who alleged that a broker at the
firm sold them preferred shares of Fannie Mae stock in 2008 despite multiple
warnings of the stock’s risk.
According to the investors’ Complaint, their broker, Miles Pure,
“strongly recommended” they invest in Fannie Mae preferred
shares. He allegedly told them the investment was “safe,”
that the U.S. government stood behind the preferred shares, and that the
stock had an attractive yield.
Based on their broker’s advice, the investors, Robert and Michelle
Billings, invested $2.3 million in the shares beginning July 28, 2008
– 13 days after the firm removed the shares from its “recommended
preferred list” due to concerns about Fannie Mae’s stability.
When the company collapsed two months later, the couple’s investment
was completely wiped out.
In the Complaint, the investors claimed that they repeatedly asked Miles
Pure to provide them with research on Fannie Mae, but that he failed to
do so prior to the company being placed in conservatorship on Sept. 7, 2008.
They also alleged that he “prevented them from learning that Merrill
Lynch had taken significant recent action and published recent analysts'
reports which reflected its very negative view of the prospects of Fannie
Mae,” and that he discouraged them from selling the shares once
the stock’s price began to decline.
The three-person FINRA panel’s official finding was that Merrill
Lynch breached its
fiduciary duty to the victims. Pure was not named in the lawsuit.