Merrill Lynch Wins Appeal of Auction-Rate Securities Case

Bank of America Corp. (BAC)’s Merrill Lynch unit won an appeal of a ruling dismissing an investor suit over auction-rate securities.

A federal appeals court in New York ruled today that Merrill Lynch provided the investor, Colin Wilson, with sufficient information about its practice of propping up auctions in the securities by submitting its own bids, barring his claim that Merrill misled investors about the securities’ liquidity. Wilson had appealed a lower court’s dismissal of the suit.

“Merrill’s particular disclosures sufficiently alerted investors in Merrill ARS of the likelihood that the interest rates and apparent liquidity of these ARS reflected Merrill’s own intervention in these auctions rather than the natural interplay of supply and demand,” U.S. Circuit Judge Robert Katzmann wrote on behalf of a three-judge panel.

Wilson, who sought to represent a class of investors in Merrill’s auction-rate securities, bought $125,000 of the securities from an online brokerage in 2007. In 2008, Merrill and the other major dealers in auction-rate securities withdrew their support for the auctions, causing most of them to fail. Wilson claimed he and other investors were left with securities they couldn’t sell.

Auction-rate securities are municipal bonds, corporate bonds and preferred stocks whose rates of return are periodically re-set through an auction.

Bill Halldin, a spokesman for Charlotte, North Carolina- based Bank of America, said in an e-mail that the company is pleased with the court’s decision. Bank of America bought Merrill in 2009.

The case is Wilson v. Merrill Lynch & Co., 10-1528, Second U.S. Circuit Court of Appeals (New York).

To contact the reporter on this story: Bob Van Voris in Manhattan federal court at

To contact the editor responsible for this story: Michael Hytha at

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.