Merrill Lynch Sued Over Release of Data on Notes
Merrill Lynch & Co. is being sued by Appaloosa Investment Ltd. of Chatham, N.J., for allegedly disclosing confidential details about the latter’s purchase of $64 million in Orange County notes in 1995.
The suit, filed in New York State Supreme Court in Manhattan, seeks $11.3 million in damages. It claims Merrill disclosed confidential information about the note sale to help settle allegations that Merrill was to blame for Orange County’s bankruptcy in 1994.
New York-based Merrill paid Orange County a $400-million settlement in June.
Merrill, the biggest U.S. brokerage, sold Appaloosa $64 million worth of short-term Orange County notes for $48 million in 1995, the suit alleges.
Merrill told the county that the fund couldn’t reject an offer from Orange County of $54.8 million or more for its notes without losing the right to have Merrill pay its legal expenses in the bankruptcy, the suit said.
“Merrill Lynch effectively became a behind-the-scenes ally of Orange County in seeking to reduce Appaloosa’s recovery,” Appaloosa said in its complaint.
As a result, Merrill and Orange County “whipsawed Appaloosa” into accepting $56 million, which was $8 million less than the $64-million face value of the notes, Appaloosa said.
“There’s no basis for any claim that we have breached our contract,” responded Bill Halldin, a Merrill Lynch spokesman. He didn’t elaborate.
The suit also claims that Merrill violated terms of the agreement to compensate Appaloosa if Orange County paid other note holders more than Appaloosa when the county reorganized. The other note holders received 100% face value on their notes, the suit said.
The companies reached the agreement because Orange County “had plainly indicated that it would treat certain note holders, including Merrill Lynch, less advantageously than others,” the suit said.
Orange County blamed Merrill more than any other investment bank for a $1.64-billion loss in its investment pool that drove it into bankruptcy. Merrill had sold former county Treasurer Robert L. Citron securities that amounted to leveraged bets on the direction of interest rates; the investments crashed when rates rose in 1994.
The county sued Merrill for $2 billion, alleging that the securities were outside its investment guidelines for municipalities and that the firm acted improperly as an advisor to Citron.
Appaloosa was founded in 1993 by David Tepper and John Walton. Before the two started Appaloosa, Tepper was head trader at Goldman Sachs & Co.’s high-yield group and Walton was senior portfolio manager at Goldman Sachs Asset Management.
Appaloosa is seeking $8 million for the alleged disclosure to Orange County of confidential details, $3.3 million in interest and $52,000 for legal fees.
