On October 24, Merrill Lynch announced a net loss of $2.3 billion from continuing operations for the third quarter. According to the company, the loss was caused by net write-downs and losses in its Fixed Income, Currencies & Commodities business. On the same day, Merrill Lynch also announced $7.9 billion in write-downs for Collateralized Debt Obligations (CDOs) and US subprime mortgages. The company had previously announced that figure was closer to $4.5 billion. CDOs generated higher yields in the short term but became risky as the real estate market softened.
Merrill Lynch now faces an investigation to determine whether or not ERISA laws were violated by investing the company's 401(k) plan into company stock. While it is not illegal to do so, if the company's stock was not a prudent investment for the 401(k) then Merrill Lynch could be guilty of breaching its fiduciary duty to plan participants.
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Current and former Merrill Lynch employees who participated in the company's 401(k) plan are concerned that the plan's officials invested their assets in Merrill Lynch, despite the stock not being a responsible investment. As a result, some feel that their 401(k) did not perform as well as it should have, or as well as it would have if it were put into other investments. They are also concerned that officials repeatedly recommended investing in Merrill Lynch when they may have known that the company was facing significant write-downs.Merrill Lynch also faces class action lawsuits from people who purchased or held Merrill Lynch common stock from February 26, 2007 to October 23, 2007. The lawsuits allege that Merrill Lynch officials made false or misleading statements about the company's financial situation.
Meanwhile, those who participated in Merrill Lynch's 401(k) plan are left wondering how much more their plan would be worth if their assets had not been invested in Merrill Lynch. If their lawsuit is successful, they will at least be able to regain some of their losses.
