Suit Regarding Sale of Risky Bonds to O.C. Is Dismissed

A New York judge has dismissed a lawsuit filed by a group of Merrill Lynch & Co. shareholders over the brokerage’s sale of risky securities to Orange County.

New York State Supreme Court Judge Ira Gammerman dismissed the suit last week, agreeing with Merrill Lynch that the shareholders did not demand that the brokerage refrain from selling the securities.

The suit addresses issues of shareholder rights and is not likely to affect a $2-billion lawsuit filed against Merrill Lynch by Orange County. The suit is still pending in Orange County Superior Court.

The shareholders suit was filed after Orange County filed for bankruptcy in December 1994, and disclosed that its highly leveraged investment fund lost at least $1.6 billion on ill-fated interest rate bets. The county emerged from bankruptcy June 12.

The suit claimed Merrill violated its fiduciary duty to shareholders and wasted corporate assets by permitting “the continued sale of billions of dollars of illiquid and highly leveraged securities to the Orange County investment pools,” the ruling said.

Merrill Lynch spokesman Andrew Sieg said the brokerage was pleased by the ruling. “As we’ve long said, Merrill Lynch acted properly and professionally in its relationship with Orange County,” Sieg said.

Lawyers for the shareholders couldn’t immediately be reached for comment.