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http://online.wsj.com/article/SB120188715142635667.html?mod=relevancy Merrill Faces Fraud Allegations By CRAIG KARMIN February 2, 2008; Page B5 Massachusetts state authorities accused Merrill Lynch & Co. on Friday of fraud and misrepresentation related to the firm's sale of debt securities that rapidly collapsed during the credit crisis. The allegations come just a day after Merrill bought back the securities, known as collateralized debt obligations, from Springfield, Mass. Merrill repurchased the CDOs at the same price of $13.9 million that the firm initially sold them to the city last spring. These CDOs, which are pools of debt that included subprime mortgages, had plunged in value to $1.2 million, according to a recent Merrill account statement for Springfield. In the Massachusetts complaint, the secretary of state alleges that Merrill acted in a way that was "inappropriate and illegal." The complaint said "these highly-risky and esoteric CDOs were unsuitable for the City of Springfield [and] Merrill Lynch did not properly disclose to the City the risks of owning these CDOs."
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