KlaymanToskes investigated and filed claims for UPS (NYSE: UPS) employees for losses sustained from unsuitable covered call writing strategies for concentrated UPS stock positions at Merrill Lynch, and other full service brokerage firms. The investigation focuses on firms’ sales practices for customers who acquired UPS stock through UPS’s Employee Stock Purchase Plan or Managers Incentive Program and were advised to implement a covered call strategy on their concentrated UPS stock position.
UPS Employees Were Put in a No Win Situation by Their Brokerage Firm
UPS employees received their shares at a low cost-basis as a form of compensation, and firms solicited them to employ a covered-call strategy that promised present income. UPS employees often have no desire to lose their shares that they worked so hard to acquire. UPS employees also wanted to keep their shares, because the shares produced consistent dividends, and the shares have a history of appreciation. In many instances the covered call strategy failed. Wall Street brokerage firms, in their implementation of the covered call strategy sold options with strike prices that were too close to the market value of the shares, sometimes while the shares were “in the money.” The strategy placed investors in a precarious position of either losing their shares or having to pay a significant sum to buy-back their stock. Further, the sale of such large positions typically ended in significant tax liability to investors.
Merrill Lynch and their Rampart Covered Call Strategy
According to multiple FINRA claims, Merrill Lynch similarly employed an unsuitable covered call writing strategy called the Rampart Strategy. After hard-working UPS employees accumulated thousands of UPS shares through UPS’s Employee Stock Purchase Program and the Manager Incentive Program, they were solicited to invest with Merrill Lynch. Merrill Lynch recommended a call writing strategy, to earn stable income. The strike prices that the call options were sold at were far too low given market conditions. The strategy was improperly implemented, and it led to UPS employees losing thousands of shares or significant amounts of money buying back the shares. The UPS employees did not want to lose shares, which they were assured they would not. More importantly, the shares paid out much needed quarterly dividends, which are relied upon in retirement.
KlaymanToskes Files Claims for UPS Investors
KlaymanToskes brought claims on behalf of clients who were UPS employees and held concentrated positions in UPS stock. KlaymanToskes filed a claim in the amount of $500,000. The Claimant, worked with UPS for 31 years. He accumulated more than 29,000 shares through the UPS’s Employee Stock Purchase Program and the Manager Incentive Program. He invested his shares with Merrill Lynch, who recommended a call writing strategy, to earn present income. The strategy was improperly implemented, and it lead to the Claimant losing thousands of his shares. The Claimant’s specific investment objective was not to lose his shares, which he was assured he would not. More importantly, the Claimant was earning much needed quarterly dividends, which he relies upon in his retirement. The strike prices that the call options were sold at were far too low given market conditions, and the firm failed to buy them back. These recommendations led to the Claimant losing thousands of his shares as well as a significant portion of his much-needed dividend payments.
KlaymanToskes filed another FINRA arbitration claim for $1,000,000 in damages on behalf of another retired United Parcel Service (“UPS”) employee for losses suffered as a result of Merrill Lynch’s unsuitable recommendation to invest in the Rampart Strategy.
Securities attorney Steven D. Toskes from KlaymanToskes explains, “The covered call strategy implemented by Merrill Lynch through Rampart was unsuitable since the strike price of the call option was either too close to the current share price of UPS or below the then current price. Mr. Toskes continues, “The close proximity of the share price and strike price of UPS virtually ensured that the stock would get called away or it would be very expensive to buy back the option. Our client accumulated low cost basis stock during the 29 years they worked for UPS and did not want to have their stock ‘called away’ and trigger a large capital gains tax.”
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The sole purpose of this release was originally to investigate the sales practices of various brokerage firms, including but not limited to Merrill Lynch, for FINRA sales practice violations including: unsuitable recommendations, misrepresentation and omissions of material facts, and failure to supervise. Specifically, the covered call strategies deployed by investment firms were unsuitable for UPS investors with concentrated stock positions which were acquired through the Employee Stock Purchase Plan and/or Managers Incentive Programs. This blog is maintained for purposes of investor education.
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