Merrill Lynch to pay $10 million to settle SEC case
Merrill Lynch has agreed to pay $10 million to settle Securities and Exchange Commission accusations that from 2002 to 2007 its brokers overcharged wealthy customers and broke confidentiality agreements in pursuit of profit.
Behavior of the brokerage was “improper and contrary to the agreements the firm had with its customers,” the SEC said in a settlement document released Tuesday.
The settlement comes just days after an SEC study recommended that Wall Street brokers should be held to a higher standard — a so-called fiduciary standard — than they have been in the past.
Under the fiduciary standard, brokers would be obligated to act in the best interest of the client, as has long been the requirement for other investment advisors.
Merrill Lynch did not admit guilt as part of the settlement but agreed to pay the penalty and consented to a cease-and-desist order.
The SEC alleged that investors working with Merrill’s brokers were told that information about their trades would be kept confidential. But from 2003 to 2005, some brokers shared this information with Merrill’s proprietary traders, who were trading for the brokerage’s own in-house account, the commission said.
In a number of instances, the SEC charged, the proprietary traders used the client information to immediately place similar trades. In one case cited in the document, after receiving information about a client trade, a proprietary trader sent back an instant message saying, “[I] always like to do what the smart guys are doing.”
The SEC also alleged that from 2002 to 2007, Merrill brokers overcharged big institutional clients for stock orders — buying big blocks of stock for one price and telling the client that it had cost a higher price.
Merrill has since been bought by Bank of America Corp.
In a statement, Bank of America spokesman Bill Haldin said, “Merrill Lynch adopted a number of policy changes to ensure separation of proprietary and other trading and to address the SEC’s concerns. Merrill Lynch also voluntarily implemented enhanced training and supervision to improve the principal trading processes at the firm.”
