The plaintiffs accused Merrill Lynch of cheating the Fund through bad investment advice and excessive hidden service fees.
They further accused Merrill Lynch of negligence and breached of duty when it advised the Fund to invest “too aggressively” causing it to lose millions of dollars when the stock market nearly collapsed in 2008.
Igisomar said Merrill Lynch’s advice had nothing to do with the movement of the stock market at that time.
“Beginning in Oct. 2008, the U.S. domestic equity markets experienced a dramatic depreciation in its overall value. The effects of this world-wide economic meltdown were experienced by the Fund, just as every other investor in every single equity market…. The drastic decrease in the equity markets was the direct and proximate cause. The Fund’s overall return during this period was better than the overall market performance,” Igisomar wrote to attorneys Michael W. Dotts who represents the plaintiffs in the case Taitano, et al v. Merrill Lynch, Pierce, Fenner & Smith Inc., et al and Sean Frink, counsel for Merrill Lynch.
Igisomar said the Fund withdrew $41.8 million from its stock portfolio in 2008 and $37.9 million in 2009 to cover pension shortfalls.
The withdrawals further reduced the value of the Fund’s assets, which were supposed to reach $1 billion by 2045 to allow the agency to become self-sustaining.
“The lawsuit’s allegation that the Fund lost 25 percent of its capital from the 2008 market crash is incorrect,” said Igisomar.
Further, he said the lawsuit’s allegation that the Fund was not able to recover what was lost in the market downturn is not right.
“The $282 million judgment obtained against the CNMI government in Civil Action 06-0367 dated Sept. 30, 2008, takes into account all the lost of investment opportunities from nonpayment of employer contribution and other obligations as well as the drawdowns from investments to meet pension payments, Thus, the lawsuit attempts to assign damages to Merrill Lynch, which have already been judicially assigned to the CNMI government’s acts,” said Igisomar.
He stressed that Merrill Lynch should not solely be blamed for the Fund’s financial mess as it was underfunded since inception.
“Unfortunately, the shock of watching the Fund’s assets decline during each of the market crashes registers in people’s minds but the Cadillac pension benefits with Pinto payments, as provided by our laws, are not as obvious to the public and to those outside of the Fund’s management,” he said.
In a previous interview, Taitano, the Fund’s former benefits director, said they might name officials of the Fund as defendants if they don’t join the lawsuit against Merrill Lynch.
Taitano, who retired in 2008, claimed the Fund is paying Merrill Lynch at least $585,000 every year and undisclosed additional charges for its financial services.
According to Taitano, Merrill Lynch is facing 22 other civil cases in different states in the U.S. and is now the subject of an investigation led by the investigative arm of the U.S. Congress, the General Accountability Office.
Merrill Lynch filed for bankruptcy in 2008 but was “saved” by Bank of America.
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