A panel of arbitrators ruled in favor of two investors in their dispute with Merrill Lynch over what they said were inappropriate investments, reports Investment News.
The three-member Financial Industry Regulatory Authority panel awarded the clients, Qun He and Haihui Zhang, $2.73 million in compensatory damages for the value of their securities, as well as $955,000 in attorney’s fees plus additional fees.
The lawyer for He and Zhang stated that they were placed into private placement and non-traded investments through feeder funds, and that the investments did not return as much as regular S&P 500 assets because of high fees. The clients had expectations that the products would be returning 15% to 20%, but the actual returns were 3% or less.
The clients charged Merrill Lynch with negligence, breach of fiduciary duty and other claims over “unspecified securities.” They had sought compensatory damages for the harm they contended was caused to their portfolio — an estimated $3.5 million — by comparing the actual results to what they would have gained from “a suitable portfolio,”
As a result of the arbitrators’ decision, Merrill Lynch will have to buy back the private investments from He and Zhang. No reason was provided for the panel’s award.
Merrill Lynch denied the customers’ claims and sought to expunge the complaint from the record of the broker, Chelsea Deng, who was not named as a party in the arbitration. The panel denied the expungement request.
Deng responded to the allegations in her BrokerCheck profile.
“I vehemently deny the allegations stated in the arbitration,” Deng wrote. “The customers understood and appreciated the investments, which were appropriate given the customers’ age, liquidity, net worth, risk tolerance and time horizon.”
“It is my understanding that the private equity investments at issue have performed as expected and have generated a positive return,” according to Deng.
A Merrill Lynch spokesperson declined to comment about the matter.
e laws, rules and regulations that impact our clients and the forums in which disputes are adjudicated. At Hyman Cotter PC, our attorneys’ unparalleled litigation experience comes from leveraging their industry-specific knowledge developed from working at firms such as Morgan Stanley, UBS Financial Services, serving as outside counsel for some of the world’s largest law firms, and through prior affiliations with the SEC. For more information about our arbitration and litigation services, please contact Hyman Cotter PC at 312-291-4600 or through our online contact form.
