The Securities and Exchange Commission (SEC) recently announced that it ordered Merrill Lynch, Pierce, Fenner & Smith Inc. more than $15 million over charges that its employees mislead customers into overpaying for their Residential Mortgage Backed Securities (RMBS).
According to the SEC, Merrill Lynch agreed to pay $5.2 million in penalties and will repay customers an estimated $10.5 million. The salespeople and traders reportedly deceived customers into overpaying for RMBS by telling them that the company paid more to acquire the securities than it actually did. In addition to that, the SEC also found that the salespeople and traders illegally profited from undisclosed and excessive commissions, also referred to as mark-ups, which as much as doubled the cost for customers in some cases. In the order, the SEC also states that Merrill Lynch did not have the necessary compliance and surveillance procedures in place to detect and prevent this type of misconduct from occurring.
“In opaque RMBS markets, lying to customers about the acquisition price can deprive investors of important information,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “The Commission found that Merrill Lynch failed in its obligation to supervise traders who allegedly used their access to market information to take advantage of the bank’s own customers.”
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Recovering Losses Caused by Investment Misconduct.