Merrill Lynch Charged with Misusing Customers’ Order Data, Hiding Trading Fees

Jack Humphrey, Regulatory journalist
January 25, 2011 /

Bank of America’s Merrill Lynch today conceded to a $10 million settlement emanating from charges of civil securities fraud filed by the Securities and Exchange Commission (SEC) that accuses the firm of misusing the order data of its customers and charging them with trading fees that went undisclosed from 2002 to 2007.

The SEC alleged that Merrill Lynch, which declared bankruptcy at the height of the global financial meltdown in 2008, had misused the order data of institutional customers from other traders obtained through its equity strategy desk to place trades on behalf of its own account.

Under the new regulation implemented last summer, banks are prohibited from making excessive proprietary trading on its own behalf. The SEC initially considered remedial actions taken by Merrill Lynch following its $20 billion acquisition by Bank of America in 2009, before it handed out the $10 million settlement.

Merrill Lynch violated the securities laws when it traded using the order data of the customers while it had previously told them that such information would be kept on a need-to-know basis, added SEC. The firm agreed to settle the SEC charges without admitting or denying them, though it vowed not to commit future securities laws violations.

The SEC also accused Merrill Lynch of failing to disclose the trading fees it collected from select wealthy customers on the basis of “prices less favorable to the customer than the prices at which Merrill purchased or sold the securities.”

Robert B. Kaplan, the co-chief of the agency’s Asset Management Unit, said Merrill Lynch’s act of collecting undisclosed mark-ups and mark-downs was improper and inconsistent with its agreements with the customers.


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