Last month, when the Securities and Exchange Commission (SEC) fined Merrill
Lynch $415 million, the firm was also fined $5 million by the Financial
Industry Regulatory Authority (FINRA) for negligent disclosure failures,
and an additional $10 million penalty by the SEC in order to settle the
charges associated with the alleged misleading statements made to investors.
According to FINRA, Merrill Lynch allegedly sold five-year senior debt
notes to customers and failed to disclose information regarding costs.
They reportedly made the costs appear to be fixed and lower than they
actually were. The notes amounted to roughly $168 million, and the firm
allegedly promoted them as a hedge against a potential downturn in the
market. Merrill Lynch was accused of failing to adequately disclose the
execution factor in the related documents and material, instead emphasizing
commission and annual fees, misrepresenting the notes to the investors.
Merrill Lynch signed a Letter of Acceptance, Waiver, and Consent, accepting
the monetary penalty and a censure.
The SEC’s additional penalty was to settle charges regarding Merrill
Lynch allegedly offering materials with misleading statements for structured
notes linked to a proprietary volatility index. The SEC also ordered Merrill
Lynch to cease and desist from violating any regulations set forth by
Section 17(a)(2) of the Securities Act.