Here is the article that we can keep here, in case The Age removes it from their website:
"Merrill Lynch Equities is being sued for more than $1 million by an investor who crossed over to the broking house from The House of Sachs.
One Lowell Catalano has taken Supreme Court action and claimed that Merrill Lynch did not properly advise him of the high-risk nature of using a hedged equity investment loan (HEIL).
The statement of claim described a HEIL transaction as buying shares in a company that was about to go ex dividend with a high yield, and simultaneously buying put options and selling call options "so as the total risk of profit and loss at the expiry of the options is known".
Catalano stated that $1 million worth of his shares were transferred from Goldman Sachs JBWere to Merrill Lynch in 2000 but that he only wanted to invest one-third of his funds, as he was looking at buying a flat.
He claimed that the opening balance of his account at Merrill Lynch was $1,099,288 but that three months later and after share, derivative and options trading, the balance was $102,637.
Catalano said Merrill Lynch did not properly advise him of the high-risk nature of investing with a HEIL and did not ensure he was aware and understood what a HEIL transaction was.
He said Merrill Lynch made very large trades relative to his account balance. "For instance, the very first trade on October 9 of buying 100,000 News Corporation shares cost $1,901,636 of which the plaintiff, unknown to himself, put up equity of $301,636.10 and borrowed from companies associated with the plaintiff $1,600,000.
"Overall, the equity committed by the plaintiff while trading with the defendant amounted to $828,069.30," the claim stated.
Catalano said that when the price of News shares was falling, Merrill Lynch, through an adviser, told him he still had plenty of cash to buy more shares, and that as a result he did buy more.
He said News shares were inappropriate to use in a HEIL transaction as their dividend yield was too low.
Catalano alleged Merrill Lynch bought and sold shares and financial derivatives in his name for the purpose of creating brokerage fees and interest payments on HEILs, rather than for the advancement and protection of his best interests.
He claimed Merrill Lynch did not have an appropriate strategy to minimise losses on trades.
He further alleged Merrill Lynch failed to exercise reasonable supervision over its employees to ensure that the firm and its staff complied with the Corporations Law.
Catalano said he had no knowledge that the nature of a HEIL transaction required that all his shares had to be sold and his option positions closed at a certain date in order to repay the HEIL regardless of his then equity position.
"He was given no information about HEIL and a HEIL transaction until after his last trade with the defendant," the claim, filed by Lennon Settle Mazzeo, said.
Merrill Lynch's defence will not be known until it is filed with the court."
The Age.
I will post a new thread on Managed Funds (as opposed to a broking firm) soon, to demonstrate that there can financial problems with that category as well. However, it happens with every group of occupation (or any human activity). There will be good ones, bad ones and average ones.
"Merrill Lynch Equities is being sued for more than $1 million by an investor who crossed over to the broking house from The House of Sachs.
One Lowell Catalano has taken Supreme Court action and claimed that Merrill Lynch did not properly advise him of the high-risk nature of using a hedged equity investment loan (HEIL).
The statement of claim described a HEIL transaction as buying shares in a company that was about to go ex dividend with a high yield, and simultaneously buying put options and selling call options "so as the total risk of profit and loss at the expiry of the options is known".
Catalano stated that $1 million worth of his shares were transferred from Goldman Sachs JBWere to Merrill Lynch in 2000 but that he only wanted to invest one-third of his funds, as he was looking at buying a flat.
He claimed that the opening balance of his account at Merrill Lynch was $1,099,288 but that three months later and after share, derivative and options trading, the balance was $102,637.
Catalano said Merrill Lynch did not properly advise him of the high-risk nature of investing with a HEIL and did not ensure he was aware and understood what a HEIL transaction was.
He said Merrill Lynch made very large trades relative to his account balance. "For instance, the very first trade on October 9 of buying 100,000 News Corporation shares cost $1,901,636 of which the plaintiff, unknown to himself, put up equity of $301,636.10 and borrowed from companies associated with the plaintiff $1,600,000.
"Overall, the equity committed by the plaintiff while trading with the defendant amounted to $828,069.30," the claim stated.
Catalano said that when the price of News shares was falling, Merrill Lynch, through an adviser, told him he still had plenty of cash to buy more shares, and that as a result he did buy more.
He said News shares were inappropriate to use in a HEIL transaction as their dividend yield was too low.
Catalano alleged Merrill Lynch bought and sold shares and financial derivatives in his name for the purpose of creating brokerage fees and interest payments on HEILs, rather than for the advancement and protection of his best interests.
He claimed Merrill Lynch did not have an appropriate strategy to minimise losses on trades.
He further alleged Merrill Lynch failed to exercise reasonable supervision over its employees to ensure that the firm and its staff complied with the Corporations Law.
Catalano said he had no knowledge that the nature of a HEIL transaction required that all his shares had to be sold and his option positions closed at a certain date in order to repay the HEIL regardless of his then equity position.
"He was given no information about HEIL and a HEIL transaction until after his last trade with the defendant," the claim, filed by Lennon Settle Mazzeo, said.
Merrill Lynch's defence will not be known until it is filed with the court."
The Age.
I will post a new thread on Managed Funds (as opposed to a broking firm) soon, to demonstrate that there can financial problems with that category as well. However, it happens with every group of occupation (or any human activity). There will be good ones, bad ones and average ones.
