KlaymanToskes announced today that it is continuing to pursue claims against Merrill Lynch, now a part of Bank of America (NYSE: BAC), on behalf of a retired UPS (NYSE: UPS) employee for losses sustained as a result of maintaining a concentrated, leveraged position in UPS stock. The Claimant in that case seeks damages of $1.25 million. The suit was filed with the Financial Industry Regulatory Authority’s (FINRA) Office of Dispute Resolution.
For his years of hard work and dedication with UPS, the Claimant received UPS employee stock options which were exercised and subsequently deposited into his Merrill Lynch account. By 2005, the Claimant’s portfolio was valued at over $3.5 million with over 90% in UPS stock, which represented a concentrated position. The Claimant owned over 50,000 shares of UPS stock that were trading at over $70 per share. The Statement of Claim alleges that while the UPS stock represented a concentrated stock position, Merrill Lynch failed to educate the Claimant, an unsophisticated investor, about the risk of owning a concentrated account. The Claimant had no idea that he was not being compensated for the risk to which his account was being exposed. Merrill Lynch failed to explain how the use of risk management strategies, like a collar, protective put options, stop loss orders and/or an exchange fund, could have protected the Claimant’s life savings.
To make matters worse, while the Claimant had a portfolio concentrated in UPS stock, he also had a margin loan against the portfolio of over $1.7 million. The loan grew to over $2 million by 2007. Over the next two years, the UPS stock maintained a price of around $70 per share until the stock plummeted in 2009. In March of 2009, the UPS stock declined to $38 per share which triggered margin calls in the Claimant’s account. As a result, he sold over 34,000 shares of the UPS stock to satisfy the calls.
The effects of margin on a concentrated position substantially increased the risk to the Claimant’s account, ultimately led to the forced liquidation of UPS stock, and precluded the Claimant from recovering his losses through a potential rebound in the price of UPS stock. Had the Claimant not been on margin, the UPS stock would not have been liquidated to meet the margin call, thereby providing it with an opportunity to recover given that the price of UPS stock came back in value since 2009. However, with the forced sale of the stock, the Claimant’s investment in UPS stock no longer has the ability to recover.
Finally, while failing to protect the Claimant’s UPS stock, Merrill Lynch did recommend that the Claimant invest $250,000 in Alesco Preferred Funding VIII, Ltd. (“Alesco fund”) which was listed by Merrill Lynch as a Preferred Stock. Merrill Lynch represented the Alesco fund as a fixed income investment with less risk. However, the Alesco fund was restricted and required that investors agree to have their investment locked-up for a specified period of time. As the Claimant is an unsophisticated investor, he relied on Merrill Lynch to properly explain the Alesco fund. However, contrary to Merrill Lynch’s representations concerning the safety of the fund, the Alesco fund declined from $250,000 to $25 by May 2010.
Current and former UPS employees who sustained investment losses as a result of maintaining a concentrated position in UPS stock on margin/hypo loans, can contact KlaymanToskes to explore thier legal options.