A large number of investors are suing Bank of America’s brokerage arm, operated by Merrill Lynch, for sales practice abuses surrounding Strategic Return Notes. As many as 44 complaints have been filed by investors against Merrill Lynch with the Financial Industry Regulatory Authority (“FINRA”).
Strategic Return Notes, issued by Bank of America, are structured notes linked to a proprietary volatility index (“VOL”). The VOL attempts to calculate the volatility of the S&P 500 (i.e., how drastically the S&P 500 changes in a given time frame). News media outlets have reported that Merrill Lynch clients have lost most of their investments in a $150 million fund.
Merrill Lynch agreed to pay the SEC a $10 million penalty to settle charges that it made misleading statements in materials provided to retail investors about the Strategic Return Notes. The SEC noted that the written materials for the Strategic Return Notes, which Merrill Lynch principally drafted and reviewed, did not disclose a quarterly cost of 1.5% that was tied to the value of the volatility index. FINRA also fined Merrill Lynch a $5 million fine for “negligent disclosure failures” in the sale of the volatility-linked structured notes. Merrill Lynch neither admitted nor denied the charges made by the SEC and FINRA surrounding the Strategic Return Notes.
A pair of whistleblowers, former Merrill Lynch brokers who began selling Strategic Return Notes in 2010, tipped off investigators of details of the structured products after taping conversations with other bank employees before leaving the company.
Investment in structured products such as Strategic Return Notes has increased drastically in recent years. According to a JPMorgan, from 2000 to 2005, structured product sales ranged from $100 billion to $200 billion annually. Comparatively, from 2007 to 2015, the same structured products saw sales in the range of $500 billion to $600 billion every year. While these complex structured products traditionally were sold to hedge funds and high net worth individuals, they have been increasingly marketed to retail investors by brokerage firms. Structured products are generally complex and risky investments that may not be suitable for all investors.
The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims before FINRA on behalf of retail investors who have suffered losses as a result of investment and securities fraud by big banks. In particular, Lax & Neville LLP has been successful in representing investors in claims against brokerage firms for the sale of highly risky and complex structured products. Please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.