Merrill’s Dealings With Insurer Probed : Securities: The SEC is reportedly looking into whether the broker engaged in a ‘parking’ scheme with failed Guarantee Security Life.
NEW YORK — Merrill Lynch & Co., the nation’s largest brokerage firm, said Wednesday that its transactions with a seized Florida insurance company are under review by federal investigators, but that it did nothing illegal or unethical.
It said it is cooperating with the Securities and Exchange Commission in a review of transactions with Guarantee Security Life Insurance.
The Jacksonville, Fla.-based insurer was seized by state regulators in August after admitting that it was insolvent because of heavy investment in junk bonds.
The report of the SEC probe comes amid a flurry of investigations by government agencies into actions of prestigious Wall Street brokerages, notably Salomon Bros.’ illicit dealings in Treasury securities.
Merrill’s stock fell $2.50 to $45 a share on the New York Stock Exchange.
The San Francisco Chronicle reported Wednesday that the SEC was looking into whether Merrill Lynch engaged in a “parking†scheme with the insurance company, in which investment papers are swapped temporarily.
It quoted unnamed sources as saying that Merrill allegedly exchanged Guarantee’s junk bonds for Treasury securities a few days before the end of each of several years.
The purpose of such a move, according to the article, was to help the insurance company avoid paying a 0.1% state tax on corporate bonds, assessed on holdings every Jan. 1.
It was also designed to make it appear that the insurer had more stable investments than it did, clouding regulators’ view of the company’s true financial condition, the Chronicle said.
In Washington, the SEC would neither confirm nor deny an investigation, citing its policy of not commenting on pending matters.
Merrill Lynch said it was cooperating with the agency and that the transactions under question, which date back to 1984, were fully disclosed at the time.
The brokerage said it was confident that its employees acted properly and that its transactions were bona fide.
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