Merrill Lynch

HISTORICALLY, Merrill Lynch has been one of the most powerful securities firms on Wall Street since it was established in 1907 by Edmund C. Lynch. However, beginning in the 1990s, Merrill Lynch, like so many other securities firms, was caught up in a swirl of civil and criminal charges resulting from corporate greed.

In the 1990s, Merrill served as the financial adviser for the Orange County Fund of California, which announced a $1.5 billion loss on December 1, 1994, making it the largest municipal failure ever reported in America, and miring Merrill Lynch in the worst scandal of its history. Robert L. Citron, the treasurer of the Orange County Fund, had worked with Merrill employees to purchase highrisk securities with large returns rather than the safer, low-risk securities usually purchased by municipal entities. After Citron resigned, hundreds of lawsuits were filed, including a $2 billion lawsuit filed by Orange County against Merrill Lynch.

Other participants in the suits against Merrill included individual participants in the Orange County pool, private investors, Orange County taxpayers, bondholders, and five money markets. At issue in the suits was whether Merrill Lynch had acted ethically in selling the risky securities to the Orange County Fund without proper warnings. Merrill Lynch reportedly spent $3 million a month fighting the suits. The Securities and Exchange Commission (SEC) investigation came to an end in 1999 when Merrill Lynch paid a $2 million fine.

Merrill's problems were not limited to California. The Inspector General of Massachusetts also opened an investigation into Merrill's municipal bond underwriting activities and sent out subpoenas to the rest of the states and to cities and banks around the country. All told, Merrill's settlements with the SEC, the Commonwealth of Massachusetts, the Attorney General of Massachusetts, and the District of Columbia equaled $12 million. New York City's controller permanently banned Merrill Lynch from managing bond deals for the city.

A number or Merrill executives were targeted in the course of various investigations. Edward Scherer, who had served as a high-yield analyst for Merrill Lynch, was sentenced to six months in prison and two years on probation on charges of conspiracy, wire fraud, and bribery. Investigators maintained that Scherer had conspired with Richard Kursman, a bond trader, to purchase bonds for their private accounts at rigged prices, resulting in millions of dollars of illegal profits. Kursman was allowed to plead guilty to the single charge of wire fraud in exchange for testifying against Scherer. In December 1996, Mark Ferber, a former partner in Lazard Freres, who had neglected to report over $2.6 million in secret payments from Merrill Lynch was sentenced to 33 months in jail and was required to pay a $1 million fine after being convicted on 31 counts of mail and wire fraud. Additionally, the SEC fined Ferber $650,000 and banned him from the securities industry for life.