When Merrill Lynch & Co. raced ahead of its rivals to become the king of collateralized-debt obligations last decade, pensions and hedge funds weren’t its only targets. The Wall Street firm also used its vaunted network of financial advisers to pitch the risky investment pools to Main Street. Some of these individual investors now say they weren’t sophisticated enough, despite their relative wealth, to understand the dangers.”We were just lambs being led to the slaughter,” said Michael Slomak, a member of a Cleveland family that he says invested $2.65 million in several Merrill-issued CDOs. He says these structured securities, typically based on a pool of debt such as mortgages, had a level of risk that was never adequately explained. The family lost all but $16,500, according to an arbitration claim the family brought against Merrill before the Financial Industry Regulatory Authority.
Merrill spokesman said investors signed a disclosure document stating that the CDO “involves a considerable amount of risk and that some or all of the investment may be lost.” Other CDO investors admit they didn’t read or overlooked certain risk disclosures spelled out in the prospectuses.