A shareholder class action suit was filed against Merrill Lynch & Co. on October 30, 2007 following an announcement by Merrill Lynch that it would have to write-down $8.4 billion in connection with mortgage-related investments. The charge for that write-down is being taken in the third-quarter of 2007. The action, entitled Life Enrichment Foundation v. Merrill Lynch & Co., et al., Case No. 07-CV-9633 (S.D.N.Y.), accuses Merrill Lynch of making false and misleading statements about its sub-prime mortgage investments. The action was filed amid intense scrutiny following the announced write-down, which has also resulted in the resignation of Merrill Lynch's CEO, Stan O'Neal.
In a statement by a Merrill Lynch representative, the Company reportedly asserted that the lawsuit was meritless, pointing out that the Company's financial results were accurately reported in each of the quarters at issue. The plaintiff, however, contends that the write-down reflects inaccuracies in the financial statements that were revealed when the write-down was announced. A copy of the shareholder class action complaint is available here.
The next day, on October 31, 2007, another shareholder filed a derivative suit based on similar allegations related to Merrill Lynch's $8.4 billion write-down. The derivative action, entitled Arthur v. O’Neal, et al., Case No. 07-CV-9696 (S.D.N.Y.), was brought on behalf of Merrill Lynch & Co. against various Merrill Lynch directors and officers, including its CEO Stan O'Neal.
The derivative action accuses O’Neal of implementing a strategy whereby Merrill Lynch became the world’s leading underwriter of collateralized debt obligations. The action then accuses Merrill Lynch’s officers and directors of "turning a blind eye" to this "imprudent strategy" and "completely abdicating" their duties as directors. The action further accuses the officers and directors of issuing false and misleading public financial statements to conceal the exposures Merrill Lynch faced from this strategy.
Based on these allegations, the derivative plaintiff accuses the defendants of breaching their fiduciary obligations of due care, loyalty and diligence in the management and administration of the affairs of the Company, as well as in the use and preservation of its property and assets. The plaintiff further accuses the defendants of abuse of control and gross mismanagement. A copy of the shareholder derivative complaint is available here.