Merrill paying $10M to settle SEC fraud charges
Merrill paying $10 million fine to settle SEC fraud charges on trading

Associated Press | January 25, 2011
By Marcy Gordon

NEW YORK (AP) -- Merrill Lynch on Tuesday agreed to pay a $10 million fine to settle civil securities fraud charges by regulators who accused the firm of misusing customers' order data to make trades for its own account and for failing to disclose trading fees.

The Securities and Exchange Commission announced the settlement with Merrill Lynch, which was acquired by Bank of America in January 2009 in a $20 billion deal forged at the height of the financial crisis.. Merrill neither admitted nor denied the allegations under the settlement but agreed to refrain from future violations of the securities laws.

The SEC said the violations occurred from 2002 to 2007. The agency said Merrill's equity strategy desk obtained information on institutional customers' orders from other traders and used it to make trades on Merrill's behalf. That was done even though the firm had told customers their order information would be kept on a strictly need-to-know basis, the SEC said.

It also said that New York-based Merrill charged some institutional and wealthy customers undisclosed trading fees.

"Investors have the right to expect that their brokers won't misuse their order information," Scott Friestad, an associate enforcement director at the SEC, said in a statement. "The conduct here was clearly inappropriate. Merrill's proprietary traders had improper access to information about the firm's customer orders, and misused it to place trades on the firm's behalf."

The sweeping financial overhaul law enacted last summer limits proprietary trading by banks, or trading on their own account for their own profit. Charlotte, N.C.-based Bank of America Corp. is cutting about a third of its proprietary trading jobs to comply with the new restrictions.

The SEC said it took into account corrective actions taken by Merrill after it was acquired by Bank of America in deciding to accept Merrill's offer of the $10 million civil fine.

Bank of America agreed to pay $150 million in a 2009 settlement with the SEC of civil charges that it misled shareholders when it acquired Merrill. The agency had accused Bank of America of failing to disclose to shareholders before they voted on the Merrill deal that it had authorized Merrill to pay as much as $5.8 billion in bonuses to its employees in 2008 even though the firm lost $27.6 billion that year.