SEC Charges Merrill Lynch with Securities Violations
National News
The Securities and Exchange Commission today charged Merrill Lynch, Pierce, Fenner & Smith, Inc. and two of its former investment adviser representatives with securities laws violations for misleading pension consulting clients about its money manager identification process and failing to disclose conflicts of interest when recommending them to use two of the firm’s affiliated services. Merrill Lynch has agreed to settle the SEC’s charges and pay a $1 million penalty.
“There has been tremendous growth in the pension consulting business in recent years. This case is an important reminder to firms and their investment adviser representatives that, whenever they sit across the table from their advisory clients, they need to make sure that all material conflicts of interest are disclosed,” said Scott W. Friestad, Deputy Director of the SEC’s Division of Enforcement.
According to the SEC’s order, Merrill Lynch failed to disclose its conflicts of interest when recommending that clients use directed brokerage to pay hard dollar fees, whereby the clients directed their money managers to execute trades through Merrill Lynch. These clients received credit for a portion of the commissions generated by these trades against the hard dollar fee owed for the advisory services provided by Merrill Lynch Consulting Services. Consequently, Merrill Lynch and its investment adviser representatives could and often did receive significantly higher revenue if clients chose to use Merrill Lynch directed brokerage services. The SEC’s order finds that Merrill Lynch also failed to disclose a similar conflict of interest in recommending that clients use Merrill Lynch’s transition management desk. In addition, the SEC finds that Merrill Lynch made misleading statements to the clients served by its Ponte Vedra South, Fla. office regarding the process used to identify new money managers to present to its clients.
The SEC also charged Michael Callaway and Jeffrey Swanson, who were formerly employed in Merrill Lynch’s Ponte Vedra South office.
In a settled enforcement action against Swanson, the SEC finds that he made misleading statements to some of the firm’s pension consulting clients regarding the process by which Merrill Lynch assisted them in identifying new managers. As a result, the SEC charged Swanson with aiding and abetting and causing Merrill Lynch’s violation of the Investment Advisers Act of 1940. Without admitting or denying the SEC’s allegations, Swanson has agreed to a censure, and to cease and desist from committing or causing violations of Section 206(2) of the Advisers Act.
In the contested enforcement action against Callaway, the SEC’s Division of Enforcement alleges that Callaway breached his fiduciary duty in making misrepresentations about the manager identification process used by the Ponte Vedra South office and his compensation in connection with transition management services. The Division of Enforcement further alleges that Callaway was a cause of Merrill Lynch’s violation of the Advisers Act because he failed to ensure that Merrill Lynch disclosed to clients the conflicts of interest in recommending that clients enter into a directed brokerage relationship with Merrill Lynch and in recommending that they use Merrill Lynch for transition management services. The Division of Enforcement charges that, by this conduct, Callaway willfully aided and abetted and caused Merrill Lynch’s violations of Section 206(2) of the Advisers Act.
The SEC charged Merrill Lynch with violations of an anti-fraud provision of the Advisers Act, which does not require a showing of scienter. The SEC also charged Merrill Lynch with failing to maintain certain records and failing to supervise its investment adviser representatives in the Ponte Vedra South office. Without admitting or denying the SEC’s allegations, Merrill Lynch has agreed to a censure, to cease and desist from committing or causing violations of Sections 204 and 206(2) of the Advisers Act, and to pay a $1 million penalty.
Related listings
-
Wyeth Shareholders Reluctant to Pfizer Sale
National News 01/28/2009Wyeth shareholders say the company is selling itself too cheaply to Pfizer - for $68 billion, or $33 for each Wyeth share, plus 0.985 of a Pfizer share. The federal class action claims that in the deal, announced Monday, Pfizer is taking advantage of...
-
Missing Fla. hedge fund manager turns himself in
National News 01/27/2009A Florida hedge fund manager who disappeared this month just as he was due to pay investors $50 million turned himself in to authorities Tuesday to face federal securities and wire fraud charges.Arthur Nadel, accompanied by two attorneys, surrendered...
-
Sludge company's ex-representative pleads guilty
National News 01/27/2009A former representative of a Texas company pleaded guilty Monday to federal bribery conspiracy, admitting a multiyear scheme to win a sludge recycling contract through cash and trips for Detroit officials.Jim Rosendall's cooperation with the FBI led ...
Chicago Business Fraud Attorney
Business Fraud can take many forms. In the broadest terms, a fraud occurs when someone intentionally deceives others for personal gain. Many times business fraud is harmful and recovery is necessary. Losing your personal or business’s assets can devastate your entire life. Contact Roth Law Groupto receive help on restoring your business to normalcy before you were victimized with fraud. Business fraud cases can involve multiple people and complicated schemes aimed at deceiving the public, auditors, investigators, or others. Whether you are dealing with corporate fraud or commercial fraud, we can step in and fight back to receive compensation that you deserve.
At Roth Law Group we are devoted to prosecuting and defending the legal rights of individuals and small businesses, as either plaintiff or defendant. Proving fraud can be extremely difficult. To have a successful business fraud case, one must prove that the defendant purposefully set out to defraud the victim. Fraud cases are being investigated more aggressively than ever. With increasing federal regulation and scrutiny of corporate practises, many individuals and businesses find themselves the subject of business fraud investigations.