Merrill Lynch, Pierce, Fenner & Smith has agreed to pay a fine of $8.9m to resolve allegations by the US Securities and Exchange Commission (SEC) that it failed to disclose conflict of interest regarding management of third-party products.
The watchdog said that the Merrill Lynch fine was the result of the bank’s mishandling of third-party products managed by the US arm of an unnamed foreign multinational bank. Over 1,500 Merrill Lynch investors were said to have invested around $575m in the products.
Why the Merrill Lynch fine?
According to the regulator, new investments into the products were halted by Merrill Lynch owing to a pending management change at the third party.
Merrill’s governance committee also planned to vote on whether to scrap the investments and offer alternative options to investors.
However, the vote was later called off and the third-party products opened to new investors after the third-party manager contacted senior Merrill executives in an effort to prevent termination.
In this process, Merrill Lynch failed to reveal the conflicts of interest in decision-making to its clients, SEC said.
SEC director of New York regional office Marc Berger said: “By failing to disclose its own business interests in deciding whether certain products should remain available to investment advisory clients, Merrill Lynch deprived its clients of unbiased financial advice.
“Retail clients must feel confident that their advisers are eliminating or disclosing such conflicts and fulfilling their fiduciary duties.”
Merrill Lynch agreed to the settlement without admitting or denying the charges. The settlement includes over $4m in disgorgement, $806,981 in prejudgment interest, and over $4m in penalty.
“We promptly enhanced our policies and procedures to ensure the confidentiality of recommendations in the future,” a Merrill Lynch spokesman said.