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Regulation and Compliance > Federal Regulation > SEC

Merrill Hit With $15M SEC Penalty Over RMBS Infractions

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Merrill Lynch agreed Tuesday to pay the Securities and Exchange Commission more than $15 million to settle charges that its employees misled customers into overpaying for residential mortgage-backed securities.

Merrill agreed to repay more than $10.5 million to its customers and to pay penalties of approximately $5.2 million.

The SEC found that Merrill Lynch traders and salespeople persuaded the bank’s customers to overpay for RMBS by deceiving them about the price Merrill paid to acquire the securities.

Merrill’s RMBS traders and salespeople “illegally profited from excessive, undisclosed commissions — called ‘markups’ — which in some cases were more than twice the amount the customers should have paid,” the SEC said.

Merrill also failed to have compliance and surveillance procedures in place that were reasonably designed to prevent and detect the misconduct that increased the firm’s profits on RMBS transactions to the detriment of its customers.

“In opaque RMBS markets, lying to customers about the acquisition price can deprive investors of important information,” said Daniel Michael, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, in a statement.

“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.”

Without admitting or denying the findings, Merrill agreed to be censured, pay a penalty of approximately $5.2 million, and pay disgorgement and interest of more than $10.5 million to Merrill Lynch customers that were parties to the transactions that are the subject of the order.

A Merrill spokesman told ThinkAdvisor in a Tuesday email that the settlement only involved institutional trades.

“We have addressed issues raised in this matter, which occurred between 2009 and 2012, and taken steps to improve our procedures,” the spokesman said.

— Check out Merrill’s New Comp Plan ‘Too Harsh,’ Recruiter Says on ThinkAdvisor.


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