Merrill Lynch Ordered To Pay $6 Million Due to Advice to Exercise Employee Stock Options and Hold Stock

An NASD arbitration panel has awarded four investors $6 million, finding that Merrill Lynch gave them negligent advice as to how to deal with their employee stock options.

The investors used margin to pay the exercise price and the taxes owed. They then held the stock (Allegiance Telecom). The investors told the panel that Merrill Lynch failed to explain other strategies, and failed to disclose the risks of holding the concentrated position on margin.

The panel rejected Merrill Lynch's argument that the investors knew the risks, that they approved every decision, and that they refused to sell the stock even as it fell in price.

Source: Wall Street Journal, February 9, 2004