The Securities and Exchange Commission ordered Merrill Lynch to reimburse investors $325,376 for failing to disclose its conflict of interest when selecting more expensive mutual fund share classes for its advisory clients when lower-cost share classes were available for those clients, the regulator said Friday.
The mutual fund share classes that Merrill Lynch chose charged 12b-1 fees, while lower-cost share classes of the same funds that the clients were eligible for did not charge fees, the SEC noted in an order that was posted online. “The firm received 12b-1 fees in connection with these investments” and “failed to disclose” that in its Form ADV, according to the SEC.
The SEC announced that it settled charges against Merrill Lynch and another smaller advisory firm. Both companies self-reported as part of the Division of Enforcement’s Share Class Selection Disclosure Initiative. A third advisory firm also self-reported within months of the initiative’s self-reporting deadline, the SEC said.
Asked for comment Monday, Merrill Lynch spokesman Bill Halldin said only that his firm self-reported as part of the SEC initiative.
The SEC found that Merrill Lynch and New York-based Eagle Strategies violated Section 206(2) of the Investment Advisers Act of 1940, and ordered that they be censured, that they cease and desist from future violations, that they pay disgorgement and prejudgment interest totaling over $425,000, and that they comply with certain undertakings, including returning the money to investors.