Joint Declaration of Lynn L. Sarko and Marc I ... - Cohen Milstein

f. Defendants argue that neither Merrill nor Defendant O’Neal acted as fiduciaries.
While Plaintiffs allege that both O’Neal and Merrill were de facto fiduciaries, there is
significant risk, that the Court either would determine that the proof is insufficient to
establish their fiduciary status or would hold that their fiduciary roles were so limited
that they could not be held liable for the violations alleged in the Complaint;
g. Defendants claim that the Plans were participant directed in compliance with ERISA
§ 404(c), and, consequently, participants, not Defendants, bore responsibility for the
losses that occurred. Plaintiffs believe that this defense is not applicable to claims
that fiduciaries maintained imprudent Plan investment options and that non-
compliance with the specific regulatory requirements of § 404(c) will, in any event,
vitiate the defense. However, Defendants would likely cite to recent case law in
support of their view that the potential § 404(c) defense is a significant risk to
Plaintiffs in this case; and,
h. Defendants claim that Plaintiffs’ allegations of improper disclosure to participants,
even if proven, support liability only if individual reliance is shown. Again, while
Plaintiffs dispute this as a legal matter, Defendants claim that there is support for their
position in the case law.
68. In addition to Defendants’ legal arguments, many of which are addressed in detail
in the motion to dismiss briefing, in the course of discussions with Co-Lead Counsel, Defendants
have outlined a spirited factual defense to Plaintiffs’ claims. Defendants insist that Merrill’s
leadership, as well as the most knowledgeable Investment Committee members, had no reason to
think that Merrill’s subprime related CDO positions posed a meaningful threat to Merrill’s
financial condition until around September 2007.
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