WASHINGTON (Legal Newsline) — Merrill Lynch will pay $415 million after allegations it misused customer cash to generate profits and failed to protect customer securities from the claims of its creditors, the Securities and Exchange Commission (SEC) has announced.
The SEC charged Merrill Lynch with violating the agency’s Customer Protection Rule. The company allegedly conducted complex options trades that lacked economic substance and artificially reduced requisite customer reserve account deposits. Merrill Lynch’s purported actions freed up billions of dollars it could then use to finance its own trading activities.
“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 J. Ceresney, director of the SEC’s Division 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.”
In addition to violating the Customer Protection Act, Merrill Lynch allegedly violated Exchange Act Rule 21F-17. Jeff Leasure and James Murtha handled the case for the SEC with help from Eli Bass and Michael Birnbaum.