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Merrill Lynch fined US$415m for using customer funds
[NEW YORK] US securities regulators fined Bank of America's Merrill Lynch US$415 million Thursday for wrongly tapping customer accounts for billions of dollars for its own trading activities.
Merrill, a wholly-owned subsidiary of Bank of America, from 2009 through 2012 engaged in complex options trades that enabled it to "artificially" reduce its stash of cash held for customer accounts, freeing up to US$5 billion for use by the bank, the Securities and Exchange Commission said.
Merrill also failed to honor the requirement that it keep customer funds in accounts that are shielded from claims by third parties should the firm collapse.
Merrill kept up to US$58 billion of a customer securities in a clearing account from 2009 to 2015 that was subject to a general lien, exposing that cash to potential loss, regulators said.
"The rules concerning the safety of customer cash and securities are fundamental protections for investors and impose lines that simply can never be crossed," said Andrew Ceresney, the SEC's director of enforcement.
"Merrill Lynch violated these rules, including during the heart of the financial crisis, and the significant relief imposed today reflects the severity of its failures."
Thursday's case included an admission of wrongdoing by Merrill, the SEC said. Mr Ceresney told reporters on a conference call that the agency pushed for the admission given the gravity of the offense and the need for accountability.
The SEC also upped its penalty on Merrill because it failed to disclose the problems to regulators after it ended some of the practices, Mr Ceresney said.
"The lack of transparency significantly increased the relief we sought," he said.
A Bank of America spokesman said the bank cooperated with the SEC in the probe.
"While no customers were harmed and no losses were incurred, our responsibility is to protect customer assets and we have dedicated significant resources to reviewing and enhancing our processes," the spokesman said.
"The issues related to our procedures and controls have been corrected."
In a second case, Merrill was fined US$15 million by the SEC and the Financial Industry Regulatory Authority for not fully informing investors on the costs related to structured "strategic return notes" that it sold to retail customers.