FL Pension Board Axes Merrill Consulting Contract

November 5, 2007 (PLANSPONSOR.com) - Jacksonville (Florida) Police and Fire Pension Fund trustees have terminated their contract with Merrill Lynch Consulting Services in the wake of a federal regulator's probe into Merrill's consulting practices in the Sunshine State.

The Jacksonville Business Journal reported that trustees voted to end the agreement with Merrill Lynch and its consultant, Michael Callaway, as of December 31, 2007, after being notified in late October by Calloway that the Securities and Exchange Commission (SEC) may be looking into potential wrongdoing with Florida clients.

About two years ago, the board learned the SEC was investigating Merrill Lynch and Callaway and was informed in writing October 29 by Merrill Lynch that “the SEC staff has indicated that it believes that some practices engaged in by Merrill Lynch and Mike Callaway violate certain regulatory prohibitions.” The board members also received an October 29 letter from Callaway informing them the SEC “has taken issue with some of Merrill Lynch’s and my practices,” the news report said.

In a statement issued after terminating the contract, the trustees said they “have no detailed knowledge of the particular practices the SEC staff believes to violate regulatory prohibitions, nor does the board by its actions today express a view of the SEC staff recommendations,” according to the Business Journal.  

For more than 20 years Merrill filled the role of independent consultant, evaluating the performance of the Jacksonville fund’s professional money manager. The Jacksonville board renewed Merrill Lynch’s contract in October 2006, but also authorized a national request for proposals for a consultant “to test the market,” according to John Keane, executive director of the fund. The board directed staff to reactivate the deferred search and schedule interviews with the top three ranked firms, the Business Journal said.

According to early media reports,Merrill Lynch is under SEC scrutiny for allegations that its Florida consultant operation charged hidden fees and engaged in conflicts of interest, according to letters it sent to various pension boards in the state(See  SEC Looks into Merrill’s Florida Pension Consultancy Practice ).