SEC Alleges Merrill Lynch Misled Customers

According to a press announcement, the Securities and Exchange Commission has charged Merrill Lynch, Pierce, Fenner & Smith Inc. with misleading customers about how it handled their orders. The firm has agreed to settle the charges, admit wrongdoing, and pay a $42 million penalty.

According to the SEC’s order, Merrill Lynch allegedly falsely informed customers that it had executed millions of orders internally when it actually had routed them for execution at other broker-dealers, including proprietary trading firms and wholesale market makers. Merrill Lynch called this practice “masking.”

“Masking entailed reprogramming Merrill Lynch’s systems to falsely report execution venues, altering records and reports, and providing misleading responses to customer inquiries,” the SEC explains.

According to the SEC, after Merrill Lynch stopped masking in May 2013, it reportedly did not inform customers about its past practices, but instead took additional steps to hide its misconduct.

Altogether, the SEC’s order found that Merrill Lynch falsely told customers that it executed more than 15 million “child” orders (portions of larger orders), comprising more than five billion shares, that actually were executed at third-party broker-dealers.

The SEC’s order censures Merrill Lynch and requires it to pay a $42 million civil penalty.

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This information, which is publicly available on the SEC’s website has been provided by The White Law Group.

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