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Local Investor Sues Merrill Lynch

Oct 10, 2002 | Palm Beach Post

After driving Hertz shuttle buses for years, Thomas Strano retired on his $120,000 nest egg.

Then, at the peak of the bull market in 2000, he invested his life savings in the Merrill Lynch Focus Twenty Fund, which held high fliers such as Exodus Communications, Juniper Networks and Inktomi.

When the tech bubble burst, the 54-year-old Boynton Beach man lost more than $100,000, his attorney said. Now Strano is back on the job, working at a Publix seafood counter near Boynton to support himself.

On Wednesday, Strano sued Merrill Lynch, saying the brokerage firm defrauded investors by failing to inform them of the risks of buying the speculative stocks in the Focus Twenty Fund. The fund's prospectus depicted it as suitable for those investing for retirement or for a child's college tuition, the suit says.

Moreover, the suit says, Merrill should have told investors of the conflicts of interest between its research analysts, who recommended stocks, and its investment bankers, who tried to win business from the companies analysts praised.

Strano's attorney, Darren Blum of Plantation, is seeking class action status for the suit, which was filed in Broward County Circuit Court.

Merrill Lynch spokesman Mark Herr called Strano's claims "untrue, baseless and meritless." Merrill clearly disclosed the fund's risks in its prospectus, he said, and the company's mutual fund analysts are "entirely different" from those who gave much-touted "buy" recommendations on stocks they privately disparaged.

Blum appeared on CNBC on Wednesday to discuss the suit, which is just the latest blow to Merrill's image. Investors from other parts of the country also have sued over Merrill's Focus Twenty Fund, which had $1 billion in assets in early 2000 but since has lost 90 percent of its value. While many stocks have tanked in the broad-based bear market of the past two years, the tech-heavy Focus Twenty Fund was hit especially hard.

Strano declined to comment Wednesday afternoon because he was busy serving customers at Publix, but his suit cites New York Attorney General Eliot Spitzer's investigation of Merrill's much-publicized internal conflicts of interest. In one example, a Merrill analyst wrote an e-mail calling InfoSpace a "piece of junk," even as he maintained a bullish rating on its shares.

Merrill spokesman Herr called those embarrassing e-mails irrelevant to Strano's losses. The managers of the Focus Twenty Fund didn't rely on investment banking analysts' picks, he said, but on separate mutual fund analysts.

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