Merrill Lynch Accused Of Insider Trading "Down Under"
As reported in the May 29, 2009 issue of the Sydney Morning Herald, Australian businessman David Waterhouse has accused Merrill Lynch (and its subsidiary Berndale Securities) of engaging in the largest case of insider trading in Australia history.
These allegations arise from a legal dispute between Berndale and How Trading, an account Mr. Waterhouse used to trade options. Berndale sued How Trading for $9.2 million and How Trading has counterclaimed for $4 million. According to the Morning Herald, the securities firm allegedly used the How Trading accounts to short-sell $55 million in Australian stocks just days before “awful” news was going to be reported by Merrill Lynch’s head office in New York in January 2008.
Reporter Mark Hawthorne quoted from a witness statement given by Mr. Waterhouse, a paragraph of which must be read in its eye-opening entirety. According to Mr. Waterhouse, a Merrill Lynch employee told him as follows:
“We wanted you done and dusted before our head office reported their results this week. That time has come and gone. Now we have to do some heavy things straight away today. We will short the hell out of stocks in the market that you have option positions on, maybe up to $100 million, which will more than match your option positions, it’s a great opportunity for you, that we know what is coming this week. With this huge short sale, we will then close the option positions and at the same time buy back the short sale stock, which will support the price on the options.”
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