Merrill Lynch Fends Off Class Action From $415M Settlement

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By Andrew Ramonas

Merrill Lynch for now has dodged a class action stemming from its $415 million settlement with the SEC to resolve claims it misused client money.

The U.S. District Court for the Southern District of California ruled July 18 that Merrill Lynch customer James Jiao’s putative class suit is barred by the Securities Litigation Uniform Standards Act, but he can file an amended complaint. That law prohibits plaintiffs in class securities suits from framing their claims as state-law violations to circumvent strict federal pleading requirements.

The suit claimed the Bank of America Corp. unit engaged in common law fraud and violated the California Corporations Code.

Jiao filed his complaint in February 2017 after becoming aware of the 2016 settlement with the Securities and Exchange Commission. The deal included a $356 million fine, which was the largest for a firm that allegedly violated the agency’s customer protection rule, according to Bloomberg News. Merrill Lynch improperly used billions of dollars of customer money to generate profits through trades for its own benefit, the SEC said at the time.

The settlement also led to a record-breaking whistleblower payout of $83 million from the SEC, according to lawyers for three tipsters who got the money. The commission had to replenish its whistleblower awards fund for the first time in the account’s eight-year history after the payout.

Abbas Kazerounian, a Costa Mesa, Calif.-based lawyer representing Jiao, declined to comment. A lawyer for Merrill Lynch didn’t immediately respond to a request for comment.

The case is Jiao v. Merrill Lynch , 2018 BL 255567, S.D. Cal., No. 17-cv-409-L(MDD), 7/18/18 .

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To contact the editor responsible for this story: Seth Stern at

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