This arbitration arises from a series of unsuitable recommendations by a Merrill Lynch financial advisor for the Claimant to purchase and hold overconcentrated, leveraged Puerto Rico bonds in a Merrill Lynch account. As a result of Merrill Lynch and its employee, the Claimant suffered substantial investment losses.
The Claimant is a 40 year old single mother of two, living in Puerto Rico, who earns less than $40,000 a year in a sales job to support her children. In 2012, Claimant received $250,000 from a third party. With no prior investment experience of any kind, her co-workers urged her to seek the advice of a financial professional to protect her gift.
She was introduced to a Merrill Lynch stockbroker who spoke to her, upon meeting, of the importance of making investments to provide financial security and income. Claimant’s only instruction to the Merrill Lynch broker was that she wanted only safe, guaranteed investments, to which the broker stated he would manage her investments and protect her from loss. The broker acknowledged the Claimant’s goals and objectives and recommended what he described as safe, low risk, conservative bonds that were “guaranteed by the Puerto Rico constitution.” However, contrary to the Merrill Lynch broker’s representations, the bonds were very speculative investments in light of the excessive concentration of Puerto Rico bonds and leverage used to purchase them.
Following the Merrill Lynch stockbroker’s advice, the Claimant let him select and manage over $1 million of Puerto Rico bonds. What she did not understand, however, was that he was purchasing the bonds on margin, meaning with money borrowed from Merrill Lynch. Even though the Merrill Lynch broker had excessively leveraged the Claimant’s account, he never discussed with her the risk to those bonds as loan collateral.
When the Claimant asked the Merrill Lynch broker about her investments and decline in her account value, he told her not to worry, that the bonds were guaranteed by the Puerto Rico constitution and to not sell them. Unfortunately, the Claimant completely relied on the Merrill Lynch broker’s advice and held the investments, because she paid the price.
In the fall of 2013, the Claimant discovered she had written a check that had bounced. When she contacted her Merrill Lynch advisor, she learned that her account’s value had sharply declined and she would not be able to withdraw any money to pay her family’s expenses.
Eventually, the Claimant was forced to liquidate her entire account, suffering substantial losses, in order to have the funds to support her family.
The wrongful conduct of Merrill Lynch and its financial advisor includes the overconcentration of the Claimant’s account with Puerto Rico bonds, which was compounded by the aggressive use of margin. The Merrill Lynch broker’s unsuitable recommendation to hold the bonds led to the decline in the account’s value and, ultimately, to the Claimant’s necessary liquidation and significant losses.
The Merrill Lynch stockbroker’s recommendations, acts and omissions were in violation of FINRA Rules of Conduct 2110, 2111 (f/k/a 2310) and 2120, which govern standards of commercial honor and principles of trade, suitability, and use of manipulative, deceptive or other fraudulent devices.
Merrill Lynch was obligated to implement a system of supervision to assure compliance with Federal and Puerto Rico law, as well as FINRA conduct rules. However, at no time did any supervisory or compliance personnel ever question the over-concentration of Puerto Rico securities in the Claimants’ account.
Merrill Lynch is responsible for its own wrongs and vicariously liable for the acts and omissions of its stockbroker. Accordingly, Merrill Lynch violated and is vicariously liable for violations of the FINRA Code of Conduct and Uniform Securities Act of Puerto Rico and for common law fraud, constructive fraud, negligent misrepresentation, breach of fiduciary duty, breach of contract, negligent management, negligent supervision of its employees, and fraudulent concealment of its misconduct.
For dedicated representation by a law firm with over of experience in all kinds of investment related disputes, a firm that knows how to handle these Puerto Rico bond fund cases, contact us by telephone at 561-338-0037 or toll free at 800-732-2889 or via e-mail. We may also be able to arrange a meeting with you at offices located in San Juan, Puerto Rico or in Boca Raton, Florida.