Bank of America Merrill Lynch has been ordered to pay a $1.3 million arbitration award to a couple whose broker, Miles Pure, sold them Fannie Mae preferred stock. Although multiple warnings of its risks were apparent, including a sell rating from Merrill Lynch's own analysts, Mr. Pure sold Robert and Michelle Billings $2.3 million in Fannie Mae preferred shares two months before Fannie Mae collapsed and was placed into conservatorship. Also, just two weeks before the Billingses purchased the shares, Moody's downgraded Fannie Mae preferred stock, and Merrill Lynch removed the shares from its recommended list due to significant concerns about the company. The Billingses ended up losing their entire investment.
A fiduciary duty is an obligation to act in the best interest of another party. A fiduciary obligation exists whenever the relationship with the client involves a special trust, confidence, and reliance on the fiduciary to exercise his discretion or expertise in acting for the client. The fiduciary must exercise all of the skill, care and diligence at his disposal when acting on behalf of the client. A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure and must not obtain a personal benefit at the expense of the client. In the case of the Billingses, FINRA found that Merrill Lynch was liable for breach of fiduciary duty and was ordered to pay compensatory damages.
The Billingses were never given any research on Fannie Mae despite their repeated requests. This prevented them from learning that Merrill Lynch had taken recent action, including recent analysts' reports, which reflected its negative view of Fannie Mae. Contrary to Mr. Pure's representations, it was Fannie Mae agency bonds and not the preferred shares that were back by the US government. The distinction was either not understood by Mr. Pure, or it was completely ignored by him in his sale of Fannie Mae shares to the Billingses.
Have you suffered losses as a result of broker misconduct? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at email@example.com for answers to any of your questions about this blog post and/or any related matter.