Merrill Lynch has agreed to pay $42 million to settle claims it misled customers about how it handled orders, the Securities and Exchange Commission said Tuesday.
The SEC alleged Merrill Lynch told customers it was handling orders internally, when it had actually routed them to third parties, a practice known in the financial services industry as “masking.” Other firms executed the deals but Merrill Lynch falsely added the trades to their systems, going so far as to change records and provide misleading responses to customer inquires, the SEC said.
Masking is a way financial companies can appear bigger and more active than they actually are, thus reducing the fees they pay to use exchanges.
Merrill Lynch stopped the practice in 2013, according to the SEC. But it did not inform customers about the practice and took steps to hide the misconduct, the government charged. All told, the SEC found that Merrill Lynch claimed it executed more than 15 million orders than it initially reported.
“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,” Stephanie Avakian, co-director of the SEC’s Enforcement Division, said. “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.”
Under the settlement agreement, Merrill Lynch will admit wrongdoing in addition to the penalty, according to the SEC.
The Office of the New York Attorney General assisted in the case.
• Jeff Mordock can be reached at jmordock@washingtontimes.com.
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