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SEC charges Merrill Lynch for failure to supervise RMBS traders

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Staff Writer |
Merrill Lynch
Banking   Merrill Lynch to pay more than $10.5 million to customers

The Securities and Exchange Commission (EC) announced that Merrill Lynch, Pierce, Fenner & Smith will pay more than $15 million to settle charges that its employees misled customers into overpaying for Residential Mortgage Backed Securities (RMBS).

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

In its order, the SEC found that Merrill Lynch traders and salespersons convinced the bank’s customers to overpay for RMBS by deceiving them about the price Merrill Lynch paid to acquire the securities.

The order also found that Merrill Lynch’s RMBS traders and salespersons illegally profited from excessive, undisclosed commissions – called “mark-ups” – which in some cases were more than twice the amount the customers should have paid.

According to the SEC’s order, Merrill Lynch 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.

The SEC’s order found that that the Merrill Lynch traders and salespersons violated antifraud provisions of the federal securities laws in purchasing and selling RMBS and that Merrill Lynch failed to reasonably supervise them.

Without admitting or denying the findings, Merrill Lynch 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.


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