Merrill ponies up $10M to settle ‘clearly inappropriate' actions

SEC says ML charged clients undisclosed mark-ups, misused client-order info for its own gain

Jan 25, 2011 @ 4:00 pm

By Liz Skinner

Merrill Lynch Pierce Fenner & Smith Inc. today agreed to pay a $10 million penalty to settle charges from the SEC that the securities firm misused customer order information to make proprietary trades and charged clients undisclosed trading fees.

According to the Securities and Exchange Commission, the inappropriate use of customer info occurred at a trading desk on Merrill’s main equity trading floor in New York. That desk, which operated between 2003 and 2005, traded securities for the firm’s own benefit and had no role in customer orders, the SEC said.

Nevertheless, those traders obtained information about institutional customer orders from traders on the market-making desk and then used it to trade on Merrill's behalf, according to the commission's complaint. Merrill told customers that their order information would be maintained “on a strict need-to-know basis,” the commission said.

“The conduct here was clearly inappropriate,” said Scott Friestad, associate director of the SEC Division of Enforcement.

Merrill's proprietary traders “had improper access” to customer order information “and misused it to place trades on the firm's behalf,” Mr. Friestad said.

In addition, the SEC said that between 2002 and 2007, Merrill charged customers undisclosed mark-ups and mark-downs by filling customer orders at prices less favorable to the client than the prices at which Merrill bought or sold the securities in the market, the SEC said.

“There is no place in our markets for charging investors undisclosed trading fees,” said Robert Kaplan, co-chief of the SEC's Asset Management Unit.

Merrill neither admitted nor denied the SEC's allegations. The firm's attorney, Bruce Coolidge of Wilmer Cutler Pickering Hale and Dorr LLP, declined to comment.

The commission said it agreed to the settlement after considering certain remedial actions undertaken by Merrill after it was acquired by Bank of America.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

INTV

Advisers beware: tax law has unintended consequences

Commission accounts could be preferable for some clients, and advisers could be incentivized to move from employee broker-dealers to independent channels.

Recommended Video

Path to growth

Latest news & opinion

Fidelity charging new fee on Vanguard assets held in 401(k) plans

The 0.05% fee is ostensibly a response to Vanguard's distribution model, but may also make the company's funds less attractive due to higher cost.

UBS adviser count continues to decline

Firm to merge U.S., global wealth management units on Feb. 1

TD Ameritrade launches all-night trading for ETFs

Twelve funds now can be traded after-hours, but the list will grow, company says.

Cutting through the red tape of adviser regulation is tricky

Don't expect a simple rollback of rules under the Trump administration in 2018 — instead, regulators are on pace to bolster financial adviser oversight.

Bond investors have more to worry about than a government shutdown

Inflation worries, international rates pushing Treasuries yields higher.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print