Merrill Lynch Must Face Post-Crisis Suit Over Synthetic CDO

A New York state appeals court on Thursday said Bank of America Corp.’s Merrill Lynch unit must face a lawsuit alleging the company misled investors about the structure of a collateralized debt obligation that defaulted during the financial crisis.

Merrill Lynch was sued in 2011 over a synthetic CDO called Auriga, which the bank created and managed, that consisted of subprime residential mortgage-backed securities and positions in credit default swaps. The CDO defaulted in February 2008, after a collapse in the U.S. housing market sparked a global economic crisis, and was liquidated eight months later.

The suit was filed ...