Wilson v. Merrill Lynch & Co., Inc.
671 F.3d 120
2d Cir.2011Background
- ARS market collapsed; auctions determined clearing rate and liquidity could fail if demand waned.
- Merrill Lynch participated as underwriter and as dealer/auction agent, placing bids to prevent auction failures.
- Wilson bought $125,000 of Merrill ARS in July 2007 and holds illiquid securities.
- Public disclosures (2006 SEC Order and Merrill website) described bid practices and potential effects on clearing rates.
- District court dismissed the complaint; appeal followed, with the SEC and amicus briefing supporting and opposing positions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do Merrill's disclosures negate manipulation claims? | Wilson argues disclosures were incomplete/misleading. | Merrill contends disclosures sufficiently reveal bidding practices to negate manipulation claim. | Yes; disclosures preclude manipulation claim. |
| Are pleadings sufficient to allege a manipulative act? | Wilson asserts detailed, pervasive manipulation alleged. | Merrill argues allegations lack specificity; not a manipulatory act as pleaded. | No; pleadings insufficient to plead a manipulative act. |
| Should SEC views be given deference in ruling on disclosures? | SEC brief supports plaintiff; deference warranted. | SEC views deserve limited deference; pleading arguments remain for court. | SEC deference acknowledged but not controlling; disclosures sufficient under standard. |
Key Cases Cited
- ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (requires pleading of manipulation with particularity; defines market manipulation elements)
- Ashland Inc. v. Morgan Stanley & Co., 652 F.3d 333 (2d Cir. 2011) (disclosure of liquidity risks can defeat manipulation claim; similar disclosures considered)
- Gurary v. Winehouse, 190 F.3d 37 (2d Cir. 1999) (false pricing signals and deception in market manipulation analysis)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (Supreme Court 1976) (defines manipulation as actions intended to deceive investors by affecting price)
- Santa Fe Indus., Inc. v. Green, 430 U.S. 462 (Supreme Court 1977) (manipulation involves deception or misleading investors through market activity)
- In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347 (2d Cir. 2010) (disclosures and their sufficiency analyzed in context of 10(b) claims)