Merrill Lynch Pays $10 Million to End SEC Claims It Misused Client Orders
Bank of American Corp.’s Merrill Lynch unit agreed to pay $10 million to settle U.S. regulatory claims that it misused clients’ securities orders to make trades with the firm’s own money.
The firm overcharged some institutional and wealthy customers on trades between 2002 and 2007, the U.S. Securities and Exchange Commission said today in a statement. In those instances, Merrill filled customer orders at prices less favorable than what the firm obtained, the SEC said.
“The conduct here was clearly inappropriate,” Scott Friestad, the SEC attorney who oversaw its case, said in the statement. “Investors have the right to expect that their brokers won’t misuse their order information.”
The settlement clears a hurdle for Bank of America Chief Executive Officer Brian T. Moynihan as he completes what he called the “final touches” of the integration of Merrill Lynch, purchased in January 2009. Merrill sought a takeover from the Charlotte, North Carolina-based lender after mortgage bond losses forced the securities firm to the brink of collapse in late 2008.
Merrill operated a proprietary trading desk from 2003 to 2005 in New York where market makers executed customer orders, the SEC said. While Merrill told clients their order information was used on a need-to-know basis, proprietary traders used the data to place trades on Merrill’s behalf after the institutional trades were placed, according to the statement.
‘Hard to Imagine’
“These kinds of practices were probably pretty widespread in the industry,” said Phillip Phan, professor at the Johns Hopkins Carey Business School in Baltimore. “Merrill probably won’t be punished overly by the market -- and I find it hard to imagine institutions were completely naïve about this.”
The company didn’t admit or deny wrongdoing in agreeing to settle the SEC’s civil complaint.
“Merrill Lynch adopted a number of policy changes to ensure separation of proprietary and other trading and to address the SEC’s concerns,” said Bill Halldin, a spokesman for Bank of America. “Merrill Lynch also voluntarily implemented enhanced training and supervision to improve the principal trading processes at the firm.”
The company’s global banking and markets division, run by former Goldman Sachs Group Inc. trading head Thomas Montag, earned $6.3 billion last year, helping prop up the bank’s unprofitable mortgage and credit-card operations. Montag was hired by then-Merrill Lynch CEO John Thain in 2008.
Last week, Bank of America reported a $1.24 billion fourth- quarter loss, its second consecutive unprofitable period, as the lender boosted provisions tied to faulty loans and litigation and wrote down the value of its mortgage unit.
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