WASHINGTON, D.C. — The Securities and Exchange Commission (SEC) has reached a $42 million settlement charges against Merrill Lynch, Pierce, Fenner & Smith for allegedly misleading customers about how the company's trades were executed.
In its order, the SEC alleged Merrill Lynch "falsely informed customers that it had executed millions of orders internally when it actually had routed them for execution at other broker-dealers."
According to the SEC, the company called the practice "masking" which involved reprogramming Merrill Lynch's systems, which falsely reported venues and altered records/reports, leading to misleading answers to customer inquiries.
Also, according to the SEC, Merrill Lynch's "masking" made the company "appear to be a more active trading center and reduced access fees it typically paid to exchanges."
“By misleading customers about where their trades were executed, Merrill Lynch deprived them of the ability to make informed decisions regarding their orders and broker-dealer relationships,” SEC’s Enforcement Division co-director Stephanie Avakian said in a statement. “Merrill Lynch, which admitted that it took steps to ensure that customers did not learn about this misconduct, fell far short of the standards expected of broker-dealers in our markets."
The SEC censured Merrill Lynch in its order in addition to the $42 million civil penalty.