Cedar Fair CEO Dick Kinzel and his wife, Judy Kinzel, have filed a $30 million federal lawsuit against Merrill Lynch and the brokerage company’s new owner, Bank of America, accusing the companies of ripping them off.
The Kinzels say the companies were failing financially and were desperate to raise cash in any possible way.
The lawsuit, filed in recent weeks in U.S. District Court Northern District, alleges Merrill Lynch in March 2009 sold 167,900 Cedar Fair units the Kinzels owned in their private account.
The sale disregarded explicit instructions the Kinzels gave not to sell the units.
The suit also names Lynch subsidiary BlackRock Inc. and several individuals.
The Kinzels are seeking $10 million in compensatory damages and $20 million in punitive damages, as well as an undetermined amount for attorney fees.
Brett Kinzel, the couple’s son, was a Merrill Lynch broker who handled his parents’ account at the firm.
He is suing for $120,000, alleging the company robbed him of a $20,000 brokerage fee.
Merrill Lynch said everything it did was authorized by its contract with the Kinzels.
“We believe the complaint is without merit and intend to vigorously defend ourselves,” spokesman Bill Halldin said. “Merrill Lynch acted completely within its legal rights and consistent with the terms of the contract.”
The lawsuit sheds new light on a curious incident in 2009, when Kinzel sold many Cedar Fair units and then had to explain publicly that he hadn’t lost confidence in his company’s future prospects.
The lawsuit alludes to the fact that the sale of the units made local and national news.
“The actions of the defendants caused the plaintiffs significant mental anguish and embarrassment,” the suit says. “The news media throughout the country reported the transaction as a margin call. This falsely suggested that the Kinzels could not pay for units which they had purchased.”
The lawsuit explains that on April 18, 2008, Richard Kinzel exercised a stock option to buy more than 650,000 units of Cedar Fair stock at a strike price of $6.03 per unit. At the time, a Cedar Fair unit was trading at $22.90, which means the 650,000 units had a market value of $14,885,000.
The Kinzels borrowed $8,874,601 from Merrill Lynch.
Over the next 10 months, the Kinzels paid back $4 million on the loan.
In March 2009, Merrill Lynch notified the Kinzels and, without any explanation, said it wanted to call on the loan.
The Kinzels paid off much of the remaining loan in about three weeks, leaving a balance of about $1.5 million.
Despite the fact that Merrill Lynch knew the loan would be paid off soon, the company dumped the units for only $6.50 apiece, a historical low price for a Cedar Fair unit sale, the lawsuit said.
The net effect: The company handed the Kinzels a $2.75 million loss on units that traded for $9.17 per unit 15 days later.
After the units were sold to BlackRock, a Merrill Lynch subsidiary, BlackRock sold them only weeks later at an enormous profit, the suit says.
Merrill Lynch fell apart at the end of 2008 and was purchased by Bank of America, a move that allowed it to avoid bankruptcy.
The lawsuit lists the various reasons for Merrill Lynch’s woes, including “relatively worthless” investments in mortgages and “accounting deception.”
The suit says that John Thain — Merrill Lynch’s then-CEO — and other Merrill Lynch executives received large bonuses despite “bankrupting the company.”
“No one told Brett Kinzel or Richard and Judith Kinzel that Merrill Lynch was desperate for cash and under pressure by Bank of America to raise as much capital as possible,” the lawsuit says.
Merrill Lynch sold the units without the Kinzels’ permission, even though the company knew the Kinzels could pay off the loan, the suit says.
“Merrill Lynch was fully aware of Richard and Judith Kinzel’s net worth which was well in excess of $16,000,000,” the suit says.
“It was also aware of the fact that Richard and Judith Kinzel had a multiple seven-figure income which was fully protected in the event Richard Kinzel left the company voluntarily or involuntarily by a contract which provided for payment in excess of $15,000,000 at the time of his departure,” the suit says. “Defendants were fully aware that the Kinzels had a top rated credit score and that they were ranked by the Merrill Lynch system as A+ credit risks.”
The lawsuit has been assigned to U.S. District Judge James G. Carr at the federal court in Toledo.
Carr is chief judge for the Northern District of the federal court system. Patrick Murray, an attorney in the Murray and Murray law firm of Sandusky, filed the lawsuit for the Kinzels.
Murray said the next step will be a response from the defendants.
Merrill Lynch, BlackRock Inc. and Bank of America — which took over Merrill Lynch after the brokerage firm’s collapse — are the companies named as defendants.
The individual defendants include John Thain, the former Merrill Lynch CEO; Kenneth Lewis, CEO of Bank of America until he, too, lost his job; Merrill Lynch employees Heidi Harms and Jonathon Sargent, and Douglas Rosen, a former Merrill Lynch employee now with Goldman Sachs.
Cedar Fair issued a statement declaring the matter a family issue for Kinzel.
“This is a personal, family matter and in no way has any bearing on — or relationship to — Cedar Fair,” spokeswoman Stacy Frole said in a statement. “As a result, the company will not have any further comment on this matter going forward.”
The bailout hits home
John Thain is a former Merrill Lynch executive who Cedar Fair CEO Dick Kinzel has named as a defendant in a federal lawsuit.
Thain was a beneficiary of the federal government’s TARP funds, billions of dollars doled out to large financial institutions as a supposed move to stabilize the financial industry in 2008, the lawsuit contends.
According to Kinzel’s suit, Merrill Lynch received approximately $10 billion from TARP, and more than 36 percent of that amount went to bonuses for company executives making more than $300,000 a year. The total bonus pay-out to those employees was $3.6 billion.
“This was a reward which (the executives) richly earned for bankrupting a company which was in business since 1914,” the lawsuit said. “Notwithstanding this absurd use of capital by Thain and other top Merrill Lynch employees, they sought liquidity by putting a squeeze on customers with the highest credit scores so that Merrill Lynch and Bank of America could be saved. Thain later became a top official at Bank of America until he was fired.”
One of those credit-strong customers who claim Merrill Lynch put the squeeze on him? Dick Kinzel.
Fortune Magazine listed Thain as the eighth highest-paid male man the U.S. in 2007, when as chairman and CEO of Merrill Lynch he made an estimated $83.8 million.
READ THE FILED LAWSUIT BY CLICKING ON THE PDF BELOW.