Merrill Lynch, Pierce, Fenner & Smith Inc. agreed to pay a $10 million fine to settle Securities and Exchange Commission charges that the company misused customer information and charged undisclosed trading fees.
According to the SEC, between 2003 and 2005 Merrill operated a proprietary trading desk known as the Equity Strategy Desk that traded securities for the firm’s benefit and had no role in executing customer orders.
The desk was located on Merrill's main equity trading floor in New York City, where traders obtained information about institutional customer orders from other traders. They used the information to place trades on Merrill's behalf after executing the customers' trades. “In doing so, Merrill misused this information and acted contrary to its representations to customers,” the SEC found.
The SEC also alleged that Merrill charged some customers undisclosed mark-ups and mark-downs by filling orders at prices less favorable to the customer than the prices at which Merrill purchased or sold the securities in the market.
"Charging these undisclosed mark-ups and mark-downs was improper and contrary to Merrill's agreements with its customers," said Robert Kaplan, co-chief of the SEC's Asset Management Unit, in a written statement. "Brokers must act honestly and transparently when charging fees to their customers. There is no place in our markets for charging investors undisclosed trading fees."
The company, which did not admit or deny the charges, was represented by Bruce Coolidge, a partner at Wilmer Cutler Pickering Hale and Dorr in Washington.
In accepting Merrill's offer, the SEC said it “considered certain remedial actions undertaken by Merrill after it was acquired by Bank of America.”