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Merrill Lynch Market-Linked Notes: Investor Beware?

Merrill Lynch underwrites, manages and markets the sale of Market-Linked Notes issued by its parent company, Bank of America Corporation, and numerous other unaffiliated banks.

Market-Linked Notes were purportedly recommended by Merrill Lynch financial advisors to customers as a stable source of income. Many investors did not adequately understand or comprehend the extreme risks associated with Market-Linked Notes or how they worked. In many instances, Market-Linked Note investments tracked oil prices, energy pipelines, or commodity baskets and have resulted in significant investor losses.

How do Market-Linked Notes Work?

Merrill Lynch managed Market-Linked Notes to generate greater returns through the use of embedded derivatives designed to track the performance of volatile securities, indices, commodities or currencies. In many instances Market-Linked Notes offered little if any principal protection. Merrill Lynch financial advisors purportedly recommended and/or solicited investments based on the potential returns without properly disclosing the risks associated with Market-Linked Notes.

Merrill Lynch purportedly provides incentives to its financial advisors for the sale of proprietary products, such as Market-Linked Notes issued by affiliated banks. Market-Linked Notes may have substantial fees and/or commissions paid to affiliated companies for banking, underwriting and asset management. Merrill Lynch may have failed to properly explain the risks associated with Market-Linked Notes to investors whose performance and interest crediting is tied to specific securities, commodities, indices or currencies, sometimes with leverage up to 200%.

In June 2016, Merrill Lynch agreed to pay a $10 million penalty to the U.S. Securities & Exchange Commission to settle charges that it was responsible for misleading statements in offering materials provided to retail investors for structured notes linked to a proprietary volatility index.

In June 2012, the Financial Industry Regulatory Authority (FINRA) censured and fined Merrill Lynch $450,000 for sales practice violations related to the sale of Structured Securities Products, referred to as Market-Linked Notes. According to FINRA’s findings in the Letter of Acceptance Wavier and Consent, more than 50% of the 650,000 Structured Securities Product transactions were issued by the parent of Merrill Lynch. FINRA regulators found that there was inadequate supervision of customer accounts to determine whether there were unsuitable levels of concentration in Market-Linked Notes.

Merrill Lynch has underwritten, managed and marketed to its customers billions of dollars in Market-Linked Notes including, for example, the following:

Bank of America – Autocallable Market-Linked Step Up Notes Linked to the S&P Oil & Gas Exploration and Production Select Industry Index Bank of America – Strategic Return Notes
Bank of America – Accelerated Return Notes® Linked to the Merrill Lynch Commodity Index eXtra Precious Metals Plus – Excess Return
Credit Suisse – Accelerated Return Notes®
HSBC USA – Market Index Target Term Securities®
HSBC USA – Capped Leveraged Index Return Notes®

If you are an individual or institutional investor who has any concerns about your accounts and/or investments with Merrill Lynch & Co., Inc., please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

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