The law firm of Klayman & Toskes, PA filed the lawsuit on behalf of participants in the Microsoft plan on Friday before the New York Stock Exchange (NYSE). The suit seeks compensatory damages of $12,613,860 against Merrill Lynch, Pierce, Fenner & Smith, Inc. for alleged unlawful conduct at its Seattle and Bellevue, Washington branch offices, according to a news release.
The alleged unlawful conduct occurred when Merrill Lynch did not recommend hedging strategies to protect the participants’ highly concentrated position in Microsoft after exercising their stock options through the use of margin via the Merrill Lynch Bank USA Portfolio Reserve Loan. This is because of the continuous and ongoing fiduciary duty to manage and provide advice beyond the exercise and initial deposit of Microsoft stock obtained through Microsoft’s plan that Merrill Lynch owed the participants, the suit contends. As such, the suit focuses on the firm’s mismanagement of its client’s portfolio given the fact that at the time of exercise, there existed option strategies that would have protected the value of the margined, concentrated portfolio, known as a “zero cost” collar.
The latest action is similar to one brought by Klayman & Toskes last year against financial services firms that allegedly failed to recommend hedging strategies to participants in the employee stock option plan of WorldCom Similarly, the participants apparently acquired an overexposure in WorldCom through the exercise of their stock options, funded by their use of margin (See Option Participants Target WorldCom ).
More information about the law firm is available at http://www.nasd-law.com.