SPRINGFIELD, MA - US state regulators for Massachusetts have filed fraud charges against investment bank Merrill Lynch for the mis-selling of unsuitable and now worthless collateralised debt obligations (CDOs) to Springfield, Massachusetts. A Merrill spokesman says the bank was confused by the lawsuit, as it had already agreed to buy back the CDOs for the $13.9 million originally invested by the town, had co-operated with inquiries and given assurances that the example was a sales-related issue specific to Springfield.

The case does, however, provide an example of growing unrest and regulatory reaction directed towards the big banks that sold such subprime-laden derivatives products before the mortgage crash last year. Rival investment banks Goldman Sachs, Bear Stearns and Morgan Stanley have all admitted to regulatory inquiries regarding subprime mortgage securities.

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