SEC probes Merrill loss disclosures

U.S. regulators are probing whether Merrill Lynch & Co. adequately informed investors about losses from sub-prime mortgages before announcing a larger-than-expected $8.4-billion write-down last week, said a person with knowledge of the matter.

The Securities and Exchange Commission has opened an informal inquiry focused on whether Merrill’s disclosures to investors reflected its knowledge at the time about potential losses, the person said, declining to be identified because the investigation wasn’t public.

Merrill, the world’s biggest brokerage, reported the largest quarterly loss in its 93-year history Oct. 24 after posting the write-down for sub-prime mortgages, asset-backed bonds and loans gone bad. The third-quarter loss was $2.24 billion, about six times more than the New York-based firm disclosed earlier in the month.

“It’s clear that Merrill Lynch responded slowly and piecemeal” relative to its peers, and the SEC will probably examine why, said John Coffee, professor of securities law at Columbia University in New York.

Merrill doesn’t comment on regulatory matters, spokesman Mark Herr said. SEC spokesman John Nester wouldn’t comment.