New York Securities Fraud Lawyers Blog
The SEC settlement indicates that Merrill Lynch sent millions of dollars in customer orders to other broker-dealers for execution while purposely concealing their activity as part of their so-called “masking.” practice. For five years, Merrill Lynch had routed some orders to broker-dealers referred to as “ELP”s, or “Electronic Liquidity Partners.” Merrill Lynch was routing their customer orders into smaller “child orders” for execution at ELPs and other external entities. Meanwhile, Merrill Lynch hid the involvement of ELPs and informed customers that all transactions occurred within the firm. The SEC alleged that Merrill Lynch created false reports; altered code to reconfigure FIX messaging systems; modified Transaction Cost Analysis reports and more to Merrill Lynch as the execution venue incorrectly. Did customers experience bad executions? Why create false reports?
Bank of America’s Merrill Lynch, Pierce, Fenner and Smith Incorporated has agreed to pay a $42 million-dollar settlement Securities and Exchange Commission for federal securities laws violations according to an Order Instituting Administrative and Cease-and-Desist Proceedings. According to the SEC’s order released Tuesday, Merrill Lynch admitted to fraudulently deceiving clients about the handling of their millions of orders to buy and trade stock. The Securities and Exchange Commission finds that Merrill Lynch “willfully violated” Sections 17(a)(2) and 17(a)(3) of the Securities Act. The case is an unfortunate reminder of the risks that even the most careful investors deal with when trusting financial institutions.
Merrill Lynch Pierce, Fenner and Smith Incorporated is a FINRA registered brokerage firm and investment advisor with 1559 total disclosures according to (CRD #7691) records on BrokerCheck. Although a Delaware corporation, Merrill Lynch’s principal offices are in Bryant Park, New York. Merrill Lynch’s business conduct includes mutual fund retail, investment advisory services; retailing corporate equity securities; selling variable life insurance or annuities, along with other securities and non-securities transactions.
It appears that Merrill Lynch went above and beyond to hide the truth about the execution of their investors’ orders. The measures that Merrill Lynch apparently took to misrepresent information are extensive yet unsurprising to securities fraud attorneys and industry members. We have seen many cases in which brokerage firms wrongly make misrepresentations to deceive investors. It is a massive injustice for investors to not have access to the truth about their own hard-earned money.
The Securities Act of 1933 and 1994 were created to protect investors from such transgressions. Under the securities laws, Merrill Lynch and other broker-dealers, may neither provide false information nor withhold impactful facts to receive an investor customer’s money and business. Section 17(a)(2) of the Securities Act which prohibits the receipt of “money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading”. Similarly, Section 17(a)(3) that prohibits transactions that involve “fraud or deceit upon the purchaser.”. Nevertheless, as stated in the SEC statement, Merrill Lynch handled clients’ business while providing inconclusive, as well as false information.
Merrill Lynch’s extensive efforts to conceal their fraudulent masking scheme are contrary to the Securities and Exchange Commission’s mission to maintain an active, efficient and meaningful market. When Merrill Lynch subsided their masking scheme after five years, customers opted out of ELPs for routine options. Such customer preferences are indicative that Merrill Lynch’s activity under concealment had been impactful. One would think that Merrill Lynch would finally want to make amends at the end of their wrongdoings. However, not only did Merrill Lynch never inform their customers, but the broker-dealer’s reports continued to hide the ELP and other external broker-dealer involved activity.
Merrill Lynch’s misrepresentations may be astounding but indeed are not the first occurrence of this kind. For instance, Deutsche Bank paid a $200 million-multi state settlement for fraud involving artificially manipulated interest rates according to an October 25, 2017, New York Attorney General announcement. Our experienced securities fraud attorneys have investigated many Financial Industry Regulatory Authority brokerage firms over issues relating to investor deceit and fraud. Everyone, from low-income retirees to high net worth career investors deserve fairness and transparency with their financial transactions. If you suspect that your broker or broker-dealer has been deceitful in handling your investments, contact our New York City-based based securities fraud attorneys for more information and protection.