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Tang finds basis to pursue Fund claim vs Merrill Lynch
»Trustee wants to substitute as claimant, says additional cost is justified by potential damage award
NMI Settlement Fund trustee Joyce C.H. Tang has disclosed that based on their independent review of the case, there is basis in pursuing the claims against the NMI Retirement Fund’s former investment consultant, Merrill Lynch.
Based on the Settlement Fund trustee legal team’s review of the litigation, Tang recommends that the U.S. District Court for the NMI substitute the trustee as the claimant against Merrill Lynch in the claims that are now pending in an arbitration proceeding before the Financial Industry Regulatory Authority, or FINRA.
Tang made the recommendation in her combined second and third quarter report for fiscal year 2014 filed in federal court on Sunday. U.S. District Court for the NMI designated judge Frances Tydingco-Gatewood held a hearing on the report on Tuesday. She has yet to rule on Tang’s recommendation.
Tang said the work related to prosecuting the claims against Merrill Lynch will increase the cost of the trustee’s expenses and consultant fees, but this added cost is justified by the potential damage award that the Settlement Fund can receive from the case.
She expects additional time and travel expenses will be incurred in connection with the FINRA arbitration of approximately $95,000 from last year’s budget of $180,000.
Also, Tang would like to retain the services of Maggie Ralbovsky of Wilshire Consulting Inc., the Settlement Fund’s investment consultant, to advise the Fund about the issues in the lawsuit.
Tang said an additional $50,000 was budgeted for Ralbovsky’s consultant fee, which will be charged on a time and expenses basis.
Merrill Lynch was the Retirement Fund board’s investment consultant until 2010. During the time of the consultancy relationship, the value of the Fund’s assets reportedly substantially dropped.
Individual claimants Mariano Taitano, Roman T. Tudela, and Patricia Guerrero filed a lawsuit in Superior Court against the Fund’s board, Merrill Lynch, and unnamed others, alleging various causes of action for damages relating to the decline of the Fund’s assets.
The Fund’s board later assigned its potential claims against Merrill Lynch to certain Fund members who were willing and able to litigate the claims.
The lawsuit in Superior Court was then stayed and the matter was submitted to arbitration before FINRA.
Tang said under the terms of the Betty Johnson settlement agreement, the proceeds from the Merrill Lynch litigation were assigned to the Settlement Fund.
Taitano, Tudela, and Guerrero are pursuing the assigned claims against Merrill Lynch on behalf of the Settlement Fund members in the FINRA arbitration proceeding.
Tang said based on their independent review, the claims against Merrill Lynch are meritorious and there is basis for proceeding against the company.
Tang said they have been communicating with the claimants’ attorney, Peter Mougey, and that the lawyer has asked the Settlement Fund trustee to substitute in.
Tang said the substitution would be accomplished by an assignment of the claims from the claimants to the Settlement Fund but the consent of the CNMI governor would be required.
She said if the court approves the substitution and the assignment of the claimants’ claims to the Settlement Fund, the Settlement Fund will enter into a legal engagement agreement with Mougey’s law firm.
Tang said they were informed by claimants’ counsel that Merrill Lynch would like to mediate this case in November 2014.
The arbitration before the FINRA is currently scheduled for the early part of 2015 in Hawaii. The arbitration date will be moved if mediation proceeds.
Tang said if the Settlement Fund is allowed to substitute as the claimant in the FINRA arbitration, the trustee strongly recommends mediation.
