Merrill Settles with SEC for $10 Million

On January 25, Merrill Lynch Pierce Fenner & Smith Inc. settled with the SEC on charges of securities fraud. The SEC had alleged that the firm inappropriately used customer information and that it charged investors undisclosed trading fees. In the settlement, the firm agreed to pay a $10 million penalty (“Merrill ponies up $10M to settle ‘clearly inappropriate' actions,” InvestmentNews, Jan. 25, 2011).

As reported in the article, the SEC charged the firm with allowing “improper access” of customer order information to the firm’s proprietary traders. According to anSEC press release, the firm allowed its Equity Strategy Desk to obtain information about customer orders, information which clients were told would be released only on a “need-to-know basis,” and then execute orders for the firm (strictly on the firm’s behalf) after the customers’ orders were placed.

Scott W. Friestad, Associate Director in the SEC's Division of Enforcement, was quoted in the press release: "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 SEC’s complaint further alleged that Merrill filled customer orders at prices other than those at which Merrill bought or sold the securities in the market, with unfavorable results for the customers. The SEC said the firm’s “undisclosed mark-ups and mark-downs” were “improper and contrary” to its customer agreements.

Merrill declined to comment on the SEC’s allegations.


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