Merrill Lynch hit with multiple fines by SEC, Finra

Bank of America's brokerage unit admits wrongdoing in unprecedented $415M consumer protection settlement with SEC; slapped with two other fines the same day

Jun 23, 2016 @ 1:30 pm

By Christine Idzelis

Thursday was not a good day for Merrill Lynch.

The wirehouse, owned by Bank of America, admitted to wrongdoing in a record $415 million settlement with the Securities and Exchange Commission, which charged it misused customer cash and failed to safeguard their securities. Separately, it was fined an additional $15 million in another action by the SEC and a third brought by the Financial Industry Regulatory Authority Inc.

The $415 million settlement is “by far the largest” relating to a customer protection violation in the SEC's history, Andrew Ceresney, director of the SEC's division of enforcement, said during a media call Thursday.

While most cases settle with firms neither admitting nor denying the SEC's charges, the SEC thought it was important to obtain an admission from Merrill for its customer protection violations because of their severity, according to Mr. Ceresney. Mary Jo White, chairwoman of the SEC, has made obtaining admissions of guilt from defendants in settlements a priority during her tenure.

According to the SEC, Merrill maneuvered to free up billions of dollars of customer cash each week from 2009 to 2012, using it to finance its own trading activities. And from 2009 to 2015, the firm held up to $58 billion per day of customer securities in a clearing account subject to a general lien by its clearing bank.

Customers would have been exposed to a “massive shortfall” in the reserve account if Merrill had failed in its trades, according to the SEC, while exposing clients to significant risk and uncertainty in getting back their own securities had the firm collapsed.

Bank of America Corp. bought brokerage firm Merrill Lynch in January 2009 as Wall Street was struggling in the financial crisis.

“While no customers were harmed and no losses were incurred, our responsibility is to protect customer assets and we have dedicated significant resources to reviewing and enhancing our processes,” Bill Halldin, a spokesman for Bank of America Merrill Lynch, said in an emailed statement about the $415 million penalty.

“The issues related to our procedures and controls have been corrected,” he said. “We have cooperated fully with the SEC staff throughout this investigation.”

In a separate announcement Thursday, the SEC said Merrill Lynch agreed to pay a $10 million penalty to settle charges that it made misleading statements in materials provided to retail investors for structured notes linked to a proprietary volatility index. The materials emphasized the commissions that were charged and the annual fee, but didn't disclose a quarterly cost of 1.5% that was tied to the value of the volatility index.

The notes were issued by Bank of America. Merrill Lynch had “principal responsibility for drafting and reviewing the retail pricing supplements,” according to the SEC.

Finra said Thursday that it slapped Merrill Lynch with a $5 million fine for “negligent disclosure failures” in the sale of the volatility-linked structured notes. Merrill Lynch neither admitted nor denied the structured note charges made by SEC and Finra.

Mr. Halldin declined to comment on the fines tied to the structured notes cases.

0
Comments

What do you think?

View comments

Recommended for you

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Featured video

INTV

What is causing the fever for RIA deals?

Deputy editor Bob Hordt and senior columnist Jeff Benjamin discuss factors adding fuel to the M&A fire in the independent advice space.

Latest news & opinion

Merger mania: Why consolidation in the RIA space is about to explode

The pace is expected to pick up as big firms seek to get even bigger and older advisers look to cash out.

Voya Financial Advisors exposes more sensitive adviser information on its website

List of top advisers at the firm comes after Social Security numbers were put at risk.

Securities America hit with lawsuit seeking $18 million in damages

Firm is dealing with the fallout from a rogue broker it fired a year ago.

Brian Block continues his legal fight to stay out of prison

A judge denied Mr. Block's motion for a new trial, but he wants another day in court.

10 social media stars you're not following yet, but should be

Some of the great people using social media to discuss wealth management and financial advice who might not be on your radar.

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