Merrill Lynch Harvest CYES Lawsuits Update

SEC Sanctions Merrill Lynch, Harvest for High Risk Trading Strategy: “Collateral Yield Enhancement Strategy” (CYES)

According to a litigation release, Merrill Lynch and Harvest Volatility Management reportedly agreed to pay a combined $9.3 million to settle SEC charges for exceeding client concentration limits on a complex options strategy, the Collateral Yield Enhancement Strategy (CYES). Between 2016 and 2018, dozens of accounts purportedly exceeded exposure limits by 50% or more, reportedly increasing customer risk and leading to losses. Merrill and Harvest reportedly collected higher fees based on inflated asset levels.

Failure to Follow Client Instructions

Merrill Lynch was reportedly fined $1 million and ordered to pay $2.8 million in disgorgement and interest, while Harvest was reportedly fined $2 million and disgorged $3.5 million. The SEC reportedly noted that there was a failure to follow client instructions or implement adequate policies. Neither party admitted wrongdoing.

The strategy, approved by Merrill in 2011 for ultra-high net worth clients, sought to generate returns by selling options linked to indices like the S&P 500 without requiring additional capital. However, Harvest allegedly failed to adjust contract volumes as the index value rose, causing excessive exposure. Merrill advisors allegedly inconsistently notified clients of these deviations.

Harvest reportedly charged a 0.5% management fee, sharing 30% with Merrill, which earned $3 million in fees. Merrill ended new enrollments for CYES in 2019 and advised customers to exit the strategy, according to the SEC.

Harvest Collateral Yield Enhancement Strategy (CYES) Securities Investigation

Options or derivatives are only suitable for the most sophisticated investors. The Harvest CYES is a complicated and high risk options strategy, managed by Harvest Volatility Management, LLC.

In August 2020, we reported numerous lawsuits involving the UBS Yield Enhancement Strategy (UBS YES), and close to $60 million dollars in investor losses, according to an article in Financial News.

Similar to the YES (Yield Enhancement Strategy), the CYES investors were depending on a portfolio of “iron condor” investments, all of which had the potential of catastrophic losses for the investor.

Market Volatility

While YES-type investments were marketed as market-neutral strategy and a “safe” investment, they are big losers in highly volatile markets. The strategy includes a broker selling call or put options to enhance returns in relatively stable or flat markets. YES strategy investments are extremely complex and risky.

Lawsuits involving Harvest CYES

The White Law Group is continuing to investigate potential securities fraud claims involving options-based investment strategies,  such as Harvest CYES sold by Merrill Lynch.

Broker dealers are required to perform adequate due diligence on any investment they recommend. They must ensure that all recommendations are suitable for the investor. Recommendations should be in line with the investor’s age, risk tolerance, net worth, and investment experience.

It is possible that some financial advisors may have recommended this type of investment because of the high commissions associated with their sale and creation.

Free Consultation with Securities Fraud Attorneys

If you have suffered losses investing in Merrill Lynch’s Harvest Collateral Yield Enhancement Strategy (CYES), please contact the securities attorneys at The White Law Group.  For a free consultation, please call the offices at 888-637-5510.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.

We represent investors in FINRA arbitration claims in all 50 states. Our attorneys have recovered millions of dollars from many brokerage firms in the past, including Merrill Lynch.

The Financial Industry Regulatory Authority (FINRA) operates the largest securities dispute resolution forum in the United States, and has extensive experience in providing a fair, efficient and effective venue to handle a securities-related dispute.