Scott Dimond Has a Good Case; Alvin Davis Wants to Defend It

I kid I kid. Scott has lots of good cases, but this one seems exceptionally strong:

Miami's Astar Air Cargo claims it was defrauded by Merrill Lynch and is demanding the return of $9 million the carrier said is frozen in an investment account with the brokerage.

Astar also wants Merrill Lynch to pay more than $27 million in punitive damages, alleging in an arbitration complaint that the company invested in auction-rate securities based on Merrill Lynch's assurances that they were safe investments easily converted to cash.

But with the collapse in demand for the securities, Astar says its assets are tied up in illiquid investments it can no longer access.

Mark Herr, a Merrill Lynch spokesman, said the suit has no merit.

Astar's ''CFO is a sophisticated businessman who wanted higher yields than cash could give the company,'' Herr wrote in an e-mail. ``Astar knew it was trading liquidity for yield because its people discussed this and the risk posed by auction-rate securities before they purchased them.''

Dimond Kaplan & Rothstein, the Miami law firm representing Astar, said it is talking with dozens of other individuals and companies it says are stuck with auction-rate securities and expects to file similar arbitration claims in coming weeks.

Astar's claim was filed with the Financial Industry Regulatory Authority, which regulates securities firms.

''Astar is a victim of a brokerage making an unsuitable investment recommendation,'' said Astar lawyer Scott Dimond. ``Astar asked [Merrill] for something that was safe and liquid and Merrill hands them something that's not.''

Astar, which is 49 percent owned by Plantation-based express-delivery firm DHL, began investing in preferred shares of closed-end municipal bond funds in 2004. The interest rates on the securities are slightly higher than those on money-market accounts, Dimond said.

Astar said it invested, on average, between $20 million and $25 million through late last year. Dimond said Merrill promised to buy Astar's investments in the event the company needed access to its funds before the auctions -- which are typically held every seven, 28 and 35 days.

But auction failures multiplied recently as investment banks refused to step in to buy as they had in the past.

Dimond blamed that on banks' exposure to the subprime mortgage crisis. Bloomberg News reported last month that ``investors and borrowers never knew the extent that banks propped up auctions because of scant public disclosure of bidding.''

Yet another less-than-obvious result of the deepening subprime mortgage crisis, and resultant depression.

Still, if Alvin Davis is correct, this will be a very good time to be a defense lawyer in South Florida:

South Florida businesses and entrepreneurs who have been involved in the subprime real estate market and its ancillary investments should make haste. There is a chilling inevitability about the increase in securities class actions and related litigation that will follow the bursting of the subprime ''bubble.'' The financial losses have been great, and the suits brought by plaintiffs eager to recoup their losses will branch out to any and all parties who can be proved negligent.

(Yes, and please hire me to handle the defense work).