SEC charges Merrill Lynch for misusing customer order information
 

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SEC charges Merrill Lynch for misusing customer order information Document Transcript

  • 1. SEC Charges Merrill Lynch for Misusing Customer Order Information and Charging Undisclosed Trading Fees; 2011-22; Jan. 25, 2011 Home | Previous Page SEC Charges Merrill Lynch for Misusing Customer Order Information and Charging Undisclosed Trading Fees FOR IMMEDIATE RELEASE 2011-22 Washington, D.C., Jan. 25, 2011 — The Securities and Exchange Commission today charged Merrill Lynch, Pierce, Fenner & Smith Incorporated with securities fraud for misusing customer order information to place proprietary trades for the firm and for charging customers undisclosed trading fees. To settle the SECs charges, Merrill has agreed to pay a $10 million penalty and consent to a cease-and-desist order. Additional Materials SEC Order Against Merrill Lynch, Pierce, Fenner & Smith Incorporated "Investors have the right to expect that their brokers wont misuse their order information," said Scott W. Friestad, Associate Director in the SECs Division of Enforcement. "The conduct here was clearly inappropriate. Merrills proprietary traders had improper access to information about the firms customer orders, and misused it to place trades on the firms behalf." The SECs order found that Merrill operated a proprietary trading desk between 2003 and 2005 that was known as the Equity Strategy Desk (ESD), which traded securities solely for the firms own benefit and had no role in executing customer orders. The ESD was located on Merrills main equity trading floor in New York City, where traders on Merrills market making desk received and executed customer orders. While Merrill represented to customers that their order information would be maintained on a strict need-to-know basis, the firms ESD traders obtained information about institutional customer orders from traders on the market making desk. They then used it to place trades on Merrills behalf after executing the customers trades. In doing so, Merrill misused this information and acted contrary to its representations to customers. The SECs order also found that, between 2002 and 2007, Merrill had agreements with certain institutional and high net worth customers that Merrill would only charge a commission equivalent for executing riskless principal trades. However, in some instances, Merrill also charged customers undisclosed mark-ups and mark-downs by filling customer orders at prices less favorable to the customer than the prices at which Merrill purchased or sold the securities in the market. "Charging these undisclosed mark-ups and mark-downs was improper and contrary to Merrills agreements with its customers," said Robert B. Kaplan, Co-Chief of the SECs Asset Management Unit. "Brokers must act honestly and transparently when charging fees to their customers. There is no place in our markets for charging investors undisclosed trading fees." Without admitting or denying the SECs findings, Merrill consented to the entry of a Commission order that censures Merrill, requires it to cease-and-http://www.sec.gov/news/press/2011/2011-22.htm[28-12-2011 20:11:41]
  • 2. SEC Charges Merrill Lynch for Misusing Customer Order Information and Charging Undisclosed Trading Fees; 2011-22; Jan. 25, 2011 desist from committing or causing any violations and any future violations of Sections 15(c)(1)(A), 15(g), and 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3(a)(6) thereunder, and orders it to pay a penalty of $10 million. In determining to accept Merrills offer, the Commission considered certain remedial actions undertaken by Merrill after it was acquired by Bank of America. Brian O. Quinn and Antony Richard Petrilla in the SECs Division of Enforcement conducted the investigation in this matter with the assistance of John W. Guidroz and Rina R. Hussain of the SECs Office of Compliance Inspections and Examinations. # # # For more information about this enforcement action, contact: Scott W. Friestad Associate Director, SEC Division of Enforcement (202) 551-4962 Robert B. Kaplan Co-Chief, Asset Management Unit, SEC Division of Enforcement (202) 551-4969 Brian O. Quinn Assistant Director, SEC Division of Enforcement (202) 551-4982 http://www.sec.gov/news/press/2011/2011-22.htm Home | Previous Page Modified: 01/25/2011http://www.sec.gov/news/press/2011/2011-22.htm[28-12-2011 20:11:41]