Thursday, July 7, 2011
A FINRA arbitration panel in California awarded a hedge fund, Rosen Capital Management, $63.7 million in its dispute with Merrill Lynch. The fund asserted that Merrill's Professional Clearing Units, which handled hedge fund accounts, made unexpected margin calls in October 2008 that the firm could not meet. The firm had to sell off its positions and went out of business. The award is one of the largest awarded to investors by a FiNRA panel.
Interestingly, courts rarely find for investors when they allege unexpected margin calls. The broker-dealer has broad discretion under the brokerage contract to protect itself from losses resulting from market changes. Unfortunately for Merrill, grounds for vacating arbitration awards are very narrow. WSJ, Merrill Loses Crisis-Era Arbitration Case, to Tune of $63.7 Million