Enron effect: Optibase files investment mismanagement suit against Merrill Lynch

Investment bank Merrill Lynch invested part of its portfolio in Enron bonds, including funds from Optibase (Nasdaq:OBAS), Radcom (Nasdaq:RDCM) and Fundtech (Nasdaq:FNDT), TheMarker has learned.

Optibase, for one, on Tuesday filed a suit against Merrill Lynch for alleged portfolio mismanagement that led to Optibase losing $2 million. Market sources estimate that Merrill Lynch invested Optibase funds in Enron bonds, given that Merrill Lynch made such investments.

The alleged false reports filed by Enron led to the re-examination of financial reports from many major publicly traded companies. The findings of these inspections could affect corporate bond investments, which to date were considered relatively secure.

Radcom is another Israeli company to have invested in Merrill Lynch funds. In the fourth quarter of 2001, Radcom wrote off $592,000. In the course of 2000 Radcom invested $4.9 million in a Merrill Lynch fund, an investment which had eroded to $592,000. Radcom ended 2001 with $3.8 million cash, compared with $12.7 million cash at the end of 2000. Its market cap is just $14.7 million.

Capital market sources estimate that other Israeli companies suffered as a result of eroded investments. It is believed that the Fundtech write-offs are related to the same fund in which Optibase had invested. In the fourth quarter Fundtech reported a $1.8 million securities write down.

In the third quarter Fundtech wrote down $6 million on securities, and in addition wrote down $1 million on business operations. At the time the company said that the securities write down was due to unsatisfactory yield, and to continuous erosion in value. The company wrote down almost $8 million, which is weighty considering its $39.6 million cash at the end of 2001. Fundtech has a market cap of $52.5 million.

Optibase declined to give further details. The Israeli branch of Merrill Lynch declined to comment. Radcom and Fundtech didn't respond up to publication of this item.

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