NEW YORK - New Jersey Attorney General Anne Milgram yesterday filed suit against Merrill Lynch & Co. for allegedly providing the state with misleading financial documents in relation to $300 million of preferred stock that its pension fund purchased early last year.
In addition, the suit claims that Merrill offered another investor better terms than what it gave New Jersey in the conversion of those shares to common stock. Bank of America Corp. is named in the complaint as a successor entity. Bank of America announced on Sept. 15, 2008, that it would acquire Merrill.
“The state relied on Merrill Lynch to provide the whole story and the company failed to do so,” Milgram said in a prepared statement. “Instead, our lawsuit charges that Merrill Lynch made misrepresentations about its financial health and engaged in the preferential treatment of other investors who, ostensibly, were investing on the same terms as the state. This case is about holding Merrill Lynch accountable for its conduct, and for recovering important investment funds on behalf of the citizens of New Jersey.”
The state Division of Investment, which oversees New Jersey’s $63.2 billion pension fund, in January 2008 purchased $300 million of preferred convertible stock with a 9% dividend from Merrill. The attorney general claims the division made that investment decision based on “inaccurate and incomplete” financial reports that downplayed financial risks.
Also, in July 2008 Merrill sought to alter the investment agreement, allegedly promising New Jersey officials that all members of the investment group that had purchased the original preferred stock would receive the same offer. That change included converting the stock to common shares with an exchange ratio of $27.68 per share.
The lawsuit states that Merrill gave at least one investor a more favorable exchange rate along with continued preferred stock holdings with a dividend.
In March, Milgram also filed suit against top Lehman Brothers Holdings Inc. executives and board members over claims that company officials misled the state’s pension fund into making investments that cost the retirement program $118 million in losses.