Merrill ponies up $10M to settle SEC charges

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

According to the Securities and Exchange Commission, the scheme occurred at a trading desk on Merrill’s main equity trading floor in New York between 2003 and 2005. That desk traded securities for the firm’s own benefit and was to have no role in customer order.

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, the complaint said. Merrill told customers that their order information would be maintained “on a strict need-to-know basis,” the SEC said.

Merrill’s proprietary traders “had improper access” to customer order information “and misused it to place trades on the firm’s behalf,” Scott Friestad, associate director of the SEC’s Division of Enforcement.”The conduct here was clearly inappropriate,” he said.

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

Merrill neither admitted nor denied the SEC’s allegations. “Merrill Lynch adopted a number of policy changes to ensure separation of proprietary and other trading and to address the SEC’s concerns,” said Bank of America Corp. spokesman Bill Halldin.

The SEC said that it agreed to the settlement after considering remedial actions undertaken by Merrill after it was acquired by BofA.

E-mail Liz Skinner at [email protected].

Related Topics: Merrill Lynch, Securities and Exchange Commission