Compliance December 4, 2007

South Miami Pension Trustees File Claim over Merrill Consulting Practices

Merrill Lynch has again been accused of violating regulatory prohibitions in its consulting practices with government pension plans.
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The Miami Herald reports the board of trustees for South Miami’s pension plan have filed an arbitration claim alleging that, rather than looking out for the interests of city employees, Merrill Lynch pursued an investment strategy intended to generate excessive fees and commissions. In November Merrill Lynch sent letters to pension boards around the state informing them that Securities and Exchange Commission (SEC) staff believe the firm and one of its pension consultants, Mike Callaway, violated federal regulations (See SEC Looks into Merrill’s Florida Pension Consultancy Practice).

Soon after, Jacksonville Police and Fire Pension Fund trustees announced the termination of the fund’s contract with Merrill Lynch Consulting Services (See FL Pension Board Axes Merrill Consulting Contract).

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Callaway, who has taken a leave of absence, also wrote clients a letter stating SEC staff believes that he and Merrill Lynch did not disclose “all of the relevant information about your fees, manager selections, alleged conflicts of interest and what I earned,” the Miami Herald said, citing the Palm Beach Post.

SEC staff notified Callaway they intended to recommend the commission institute a cease-and-desist proceeding alleging he violated securities laws.

“This office was a bunch of bad apples who woke up every morning with the express thought of how they were going to generate fees and commissions off the pension plans they represented in the state of Florida,” said Bradley Cassel, board chairman of South Miami’s pension plan, in the news report.

Compliance December 4, 2007

BoA Loses Effort to Get Discrimination Charges Tossed

A federal judge in Massachusetts has turned aside Bank of America’s efforts to dismiss some of the allegations in a suit accusing the financial services giant of discriminating against African-American bankers and brokers.
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According to a Reuters news report, U.S. District Judge Nancy Gertner of the U.S. District Court for the District of Massachusetts rejected the bank’s argument that some of the plaintiffs’ allegations made under Massachusetts law should be thrown out. The bank’s effort to move the case to a Georgia federal court, since most of the events and relevant documents and other evidence is in that state, was also rebuffed by Gertner, Reuters reported.

The lawsuit, filed in May, seeks class-action status and accuses Bank of America of regular discrimination via work assignments, training, and access to clients. The bank regularly “steered” African-American bankers and brokers to largely minority or low-net-worth clients and the bank believed clients were more “comfortable” dealing with people of their own race, the suit charged.

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In an e-mailed statement to Reuters, Bank of America spokeswoman Shirley Norton said, “There was no ruling on the motion. A procedural action was taken.” Norton also said the bank has a record of hiring and developing workers and does not tolerate discrimination. “We intend to vigorously defend against the claims in the lawsuit,” Norton added.

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