Securities Lawyers Blog
The investment attorneys of Gana Weinstein LLP have brought a claim on behalf of an investor who suffered substantial losses due to investment recommendations made by his Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) advisor, Craig Kinard (Kinard) a proprietary Merrill Lynch fund called the MLCXX6LSER Index (MLC Index). The fund is also referred to as “The Merrill Lynch Commodity Index eXtra—(Excluding Precious Metals) Excess Return Index.” The MLC Index was run at Merrill Lynch by Guido Graff (Graff), Director of Ultra Structured Solutions at Merrill Lynch.
The complaint alleged that the MLC Index is one of the most complex investment products that could be sold to a retail investor and consequently is suitable for very few investors. The strategy involves extreme leverage, commodities, derivatives, options, and swaps risk. Any investor without significant prior experience in all of these categories will not be able to understand the risks or likely performance of the investment under different market conditions. Indeed, in this case the risks and expected performance of the MLC Index proved to be too great a challenge even for the fund managers to understand. In addition, to these problems the MLC Index was offered by Merrill Lynch to clients subject to enormous costs and fees.
The MLC Index is an absolute return strategy investment fund in the long-short commodity arbitrate space. Absolute return investing seeks to produce positive returns over time regardless market conditions. Even when markets are falling, an absolute return fund is advertised to still have the potential to make money. Arbitrage strategies attempt to benefit from an assumed correlation between different market instruments or different markets.