WASHINGTON (Legal Newsline) — The Securities and Exchange
Commission (SEC) has announced Merrill Lynch will pay $10 million in penalties
to settle allegations it misled customers in statements provided to retail
investors for structured notes linked to a proprietary volatility index.
“This case continues our focus on disclosures relating to
retail investments in structured notes and other complex financial products,” said Andrew
J. Ceresney, director of the SEC Enforcement Division. “Offering
materials for such products must be accurate and complete, and firms must
implement systems and policies to ensure investors receive all material facts.”
The SEC alleged Merrill Lynch provided offering
materials that emphasized that the notes were subject to a 2 percent sales
commission and .75 percent annual fee. This meant that the volatility index
would need to increase by 5.93 percent from its starting value over a five-year
period for investors to earn back their original investment. Merrill Lynch,
however, failed to adequately disclose a third cost included in the volatility
index that imposed a cost equal to 1.5 percent of the index value each quarter.
“This case demonstrates the SEC’s ongoing commitment to
creating a level playing field when it comes to the sale of highly complex
financial products to retail investors,” said Michael J. Osnato, chief of the SEC
Enforcement Division’s complex financial instruments unit.
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U.S. Securities and Exchange Commission
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Washington, DC 20001
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