Merrill Settles Subprime-Related Suits

January 20, 2009 ( - Merrill Lynch & Co. will pay $550 million to settle claims by the Ohio State Teachers Retirement System and other shareholders that it misled investors about assets backed by subprime mortgages.

Merrill agreed to pay $475 million in cash to investors including OSTRS, who was lead plaintiff in the case, and $75 million in cash to settle claims by company employees who held stock in certain retirement plans, the company said Friday in a filing with the Securities and Exchange Commission.

The suit, filed last May, accused Merrill Lynch of issuing false and misleading statements about collateralized debt obligations and other assets backed by subprime mortgages, which served to artificially inflate the value of the brokerage giant’s shares, according to the complaints filed in federal court in Manhattan.

“We’re still learning how far-reaching the fallout from the meltdown of sub-prime mortgages will be, but one thing is clear: Many Ohioans saw the value of their retirement savings take a nose-dive as a result of improper practices on the part of the financial giants,” recently inaugurated Ohio Attorney General Richard Cordray said.

Merrill, recently acquired by Bank of America, didn’t admit wrongdoing as part of the settlements, which didn’t address derivative shareholder or bondholder claims. The company is defending those lawsuits, according to the filing.

“Although we vigorously disputed the allegations in these cases, we concluded it was best to avoid the uncertainty, distraction and costs of the litigation, and to try to achieve certainty through these settlements,” Mark Herr, a spokesman for Merrill Lynch, said in an e-mailed statement to Bloomberg News.

The board of the Ohio state teachers fund approved the settlement yesterday. The accord must also be approved in federal court in Manhattan.

The case is In Re Merrill Lynch & Co. Inc. Securities, Derivative and ERISA Litigation, 07-9633, U.S. District Court, Southern District of New York.