Merrill Lynch, Pierce, Fenner & Smith Inc. has agreed to settle allegations that it misled customers in order to get them to overpay for residential mortgage-backed securities.
Employees of the New York-based investment banking firm, which in January 2009 was acquired by Bank of America Corp., are accused of misleading RMBS clients.
Traders and salespeople at Merrill Lynch allegedly
convinced customers to overpay for RMBS by deceiving them about the price it paid to acquire the securities.
As a result of convincing customers to overpay for the RMBS, the employees
illegally profited from excessive, undisclosed “mark ups.” In some cases, the mark ups were more than twice the amount the customers should have paid.
The alleged activity violated anti-fraud provisions of federal securities laws.
The Securities and Exchange Commission claims that
Merrill Lynch failed to maintain compliance and surveillance procedures reasonably designed to prevent and detect such misconduct.
“In opaque RMBS markets, lying to customers about the acquisition price can deprive investors of important information,” Daniel Michael, chief of the SEC enforcement division’s complex financial instruments unit, said in an announcement Tuesday. “The commission found that Merrill Lynch failed in its obligation to supervise traders who allegedly used their access to market information to take advantage of the bank’s own customers.”
An order issued by the regulator requires Merrill Lynch to
repay more than $10.5 million to its customers that were parties to the transactions and to pay $5.2 million in penalties.
In addition, Merrill Lynch agreed to be censured.
