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June 23, 2016

Posted  August 1, 2016

Merrill Lynch will pay $415 million and admit wrongdoing to settle charges that it misused customer cash to generate profits for the firm and failed to safeguard customer securities from the claims of its creditors.  An SEC investigation found that Merrill Lynch violated the SEC’s Customer Protection Rule by misusing customer cash that rightfully should have been deposited in a reserve account.  Merrill Lynch engaged in complex options trades that lacked economic substance and artificially reduced the required deposit of customer cash in the reserve account.  The maneuver freed up billions of dollars per week from 2009 to 2012 that Merrill Lynch used to finance its own trading activities.  Had Merrill Lynch failed in the midst of these trades, the firms’ customers would have been exposed to a massive shortfall in the reserve account.  In addition, according to the SEC’s order, Merrill Lynch further violated the Customer Protection Rule by failing to adhere to requirements that fully-paid-for customer securities be held in lien-free accounts and shielded from claims by third parties should the firm collapse.  In addition to the Customer Protection Rule violations, Merrill Lynch violated Exchange Act 21F-17 by using language in severance agreements that operated to impede employees from voluntarily providing information to the SEC.  SEC

Tagged in: Regulatory Violations, Securities Fraud,