The city of Duluth wants to hire a special counsel in a possible lawsuit against Merrill, Lynch, Pierce, Fenner & Smith Inc. over the city's loss of more than $1 million in an ill-advised $3 million investment in Mainsail II.
Mainsail II, a commercial paper, was partly backed by investments in subprime mortgages.
In 2007, Merrill Lynch recommended the city buy $3 million worth of stock in Mainsail II for the short-term returns the city sought. At the time, Mainsail II had A+ ratings from S&P and Moody's, but when problems in the market developed, the city wanted to sell its holdings but found no market for it.
By May 2008, the city's $3 million investment had shrunk to about $1.9 million.
Because of the specialized nature of the litigation, the city wants to hire Briol & Associates, Minneapolis, as special counsel for a fee of up to $75,000. Securities law is among the firm's specialties. A resolution to authorize the hiring and expenditure will go before the Duluth City Council on Monday.
