SEC, Firms Reportedly Discuss Fraud Settlement
The Securities and Exchange Commission is discussing a settlement with three U.S. brokerage firms that would require them to pay about $100 million in restitution in cases involving sales of limited partnerships, attorneys involved in the case said Friday.
A settlement with Merrill Lynch & Co., Lehman Bros. Holding Inc. and Dean Witter Reynolds Inc. could be reached in the next several months, attorneys said.
News of the negotiations comes a week after PaineWebber agreed to pay $332.5 million to settle charges by the SEC, state regulators and customers arising from the limited partnership sales.
The securities industry is attempting to settle remaining claims of fraud and deceit stemming from the sales of billions of dollars of the investments in the last 15 years.
“I think the PaineWebber settlement prompted the firms to want to get this behind them, and that’s added impetus to the talks,” said Thomas Grady, an attorney with Grady & Associates, which represents several of the investors claiming they were defrauded through the partnership sales.
Even with a settlement, the resulting litigation from the sales of the once-popular investments would not end. Last month, attorneys filed suit in U.S. District Court in Manhattan alleging that Merrill Lynch defrauded individuals through its sale of the limited partnerships.
Merrill Lynch is a passive minority investor in Bloomberg, the parent company of Bloomberg Business News.
The Merrill case, filed in December by the law firm Chimicles, Jacobson & Tikellis, the attorneys who led the suit against Paine-Webber, is seeking class-action status. If granted, it would allow others sold similar partnerships to participate in the case and could enlarge the size of any award against Merrill Lynch.
Merrill Lynch and Dean Witter would not comment on the settlement possibility, first reported in the Wall Street Journal. The SEC also declined comment. A spokesman from Lehman Bros. was not immediately available for comment.
The settlement would use $30 million to $40 million in cash from the firms to establish a fund to pay administrative claims by investors sold the limited partnerships.
Limited partnerships are risky financial instruments that have resulted in millions of dollars of losses for investors.
