Merrill Lynch to Pay $415 Million to Settle SEC Accounts Probe -- Update

By Aruna Viswanatha and Jenny Strasburg 

Bank of America Corp.'s Merrill Lynch unit will pay $415 million to resolve accusations from the Securities and Exchange Commission that it misused customer cash, the agency said Thursday.

The brokerage should have deposited the customer funds in a reserve account, but instead engaged in complex options trades that artificially reduced the amount it needed to deposit, freeing up billions of dollars each week to finance trading activities, the SEC said.

Merrill admitted to wrongdoing in the trades, which occurred between 2009 and 2012, the agency said.

"While no customers were harmed and no losses were incurred, our responsibility is to protect customer assets and we have dedicated significant resources to reviewing and enhancing our processes," a Bank of America spokesperson said. "The issues related to our procedures and controls have been corrected."

The bank, which said it cooperated fully with SEC staff in the investigation, said the settlement will have no effect on second-quarter results.

The SEC also sued the firm's head of regulatory reporting, William Tirrell, in connection with the case.

Mr. Tirrell is disputing the charges.

Steven M. Witzel, of law firm Fried, Frank, Harris, Shriver & Jacobson LLP, said, while Mr. Tirrell is disappointed by the lawsuit filed by the SEC, the 35-year securities-industry veteran "looks forward to the opportunity to vindicate himself at trial."

Merrill Lynch also separately agreed to pay a $10 million penalty to resolve an SEC case accusing it of misleading customers on structured notes. It also paid an additional $5 million to settle a similar case from the Financial Industry Regulatory Authority, the Wall Street regulator said Thursday.

The settlement and investigation, previously reported by The Wall Street Journal, concerned the so-called Rule 15c3-3, part of the Securities Exchange Act of 1934, designed to ensure that banks and trading firms safeguard customer assets, by setting aside enough cash so that if the firms fail, they can readily pay back what they owe customers.

The Charlotte, N.C.-based bank's Merrill Lynch unit violated the rule by making billions of dollars of loans to finance "riskless trades that lacked defined terms and economic substance," the SEC said.

The Journal previously described some of the trades at issue in an April 2015 story first disclosing the investigation.

Write to Aruna Viswanatha at [e-mail]

(END) Dow Jones Newswires

June 23, 2016 11:41 ET (15:41 GMT)

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