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Tuesday, June 12, 2018 - Merrill to pay $15.7 million for duping mortgage bond buyers
Bank of America Merrill Lynch
Source -
Where - United States of America
Cost - 15,700,000 USD
Business line - Trading and Sales

Bank of America Corp.’s Merrill Lynch unit will pay $15.7 million to settle a U.S. regulator’s allegations that it failed to properly supervise traders who persuaded clients to overpay for mortgage bonds by misleading them about how much the firm paid for the securities.

Salespeople at the firm illegally profited from improper markups on residential mortgage backed securities that were in some cases twice as much as what customers should have paid, the Securities and Exchange Commission said in a statement Tuesday. Merrill agreed to pay a fine of about $5.2 million, and to pay disgorgement and interest of more than $10.5 million, the SEC said.

“Lying to customers about the acquisition price can deprive investors of important information,” said Daniel Michael, head 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.”

In one instance, Merrill realized a profit of more than 100 percent when employees sold for 4 cents on the dollar a bond that the firm had bought for fewer than 2 cents, the SEC said.

Merrill agreed to settle the case without admitting or denying the agency’s allegations. “We have addressed issues raised in this matter, which occurred between 2009 and 2012, and taken steps to improve our procedures,” Bill Halldin, a Bank of America spokesman, said in an email.

Cracking down on bank traders who mislead clients about opaque markets for mortgage bonds has been a priority for the SEC and Justice Department in recent years. But the government has faced several setbacks. A federal appeals in May court threw out the conviction of former Jefferies & Co. managing director Jesse Litvak. The same day as the Litvak ruling, a jury acquitted former Cantor Fitzgerald LP trader David Demos of five counts of securities fraud.