Merrill Lynch, Pierce, Fenner & Smith Inc has reached a $1 million settlement agreement with the Securities and Exchange Commission over charges that the broker-dealer misled its pension consulting clients by neglecting to disclose conflicts of interest. By agreeing to settle, Merrill Lynch is not denying or admitting wrongdoing. The investment firm will, however, cease and desist from committing future violations.
According to the SEC, Merrill Lynch recommended that clients pay hard dollar fees using directed brokerage. The firm’s investment advisers, however, failed to mention that choosing this option-which would direct trades to be executed through Merrill-could allow the company and its investment adviser representatives to receive substantially higher revenues. The SEC also accused Merrill Lynch of neglecting to reveal a similar conflict of interest when it recommended to clients that they utilize the firm’s transition management desk and of making misleading statements about the firm’s process for identifying new money managers.
SEC charges against Merrill Lynch include anti-fraud provision violations, failure to maintain specific records, and failure to supervise its investment advisers in the Ponte Vedra South office in Florida.
Also cited by the SEC for misleading pension consulting clients about the way Merrill identified new money managers is Jeffrey Swanson. The former Merrill adviser agreed to case and desist from violating the 1940 Investment Advisers Act in the future. By agreeing to the censure, however, Swanson is not admitting to or denying wrongdoing.
The SEC also censured former Merrill Lynch adviser Michael Callaway for breach of fiduciary duty when he made misrepresentations about the manager identification process and his compensation related to transition management services. The SEC says Callaway should have made sure that any conflicts of interest should have been revealed to clients. Both Callaway and Swanson were from the Florida office.
The SEC says that the outcome of this case should remind investment adviser representatives that they must disclose all conflicts of interest when offering advice to clients.
Related Web Resources:
SEC Charges Merrill Lynch With Misleading Pension Consulting Clients, SEC, January 30, 2009
Read the SEC Administrative Proceeding Against Merrill Lynch, Pierce, Fenner & Smith, Inc., January 30, 2009 (PDF)
Broker-dealer misrepresentation is considered broker misconduct. If you are an investor who suffered financial losses because a broker misrepresented information or failed to disclose certain facts to you, please contact our stockbroker fraud attorneys and ask for your free case evaluation today.