A Merrill Lynch & Co brokerage agreed to pay US$1 million to settle US regulatory claims that employees in a Florida office misled pension clients and failed to disclose conflicts of interest from 2002 to 2005.
The firm falsely told pension clients its office in Ponte Vedra South used an “extensive” screening process when recommending money managers to help invest their assets, the Securities and Exchange Commission said in a civil complaint on Friday. Instead, employees in the office relied on a “shortlist” of about 60 managers, it said.
The agency also faulted Merrill for failing to explain that investment advisers may have a financial incentive to recommend that clients execute transactions through its trading desk. While the arrangement helped cover clients’ advisory costs, it can also increase revenues to the firm and advisers, the SEC said.
“There has been tremendous growth in the pension-consulting business in recent years,” Scott Friestad, the SEC enforcement official who oversaw the case, said in a statement.
Firms and their employees “need to make sure that all material conflicts of interest are disclosed.”
One former employee in the Florida office settled claims he helped the firm mislead clients about the recommendation process, the SEC said.
He wasn’t fined, and like Merrill didn’t admit or deny wrongdoing.The agency’s claims are still pending against another former worker for allegedly aiding and abetting the company’s misconduct.
“The events that gave rise to this settlement involved, primarily, a team of advisers in Florida, who have left the firm,” New York-based Merrill said in a statement.
The firm voluntarily strengthened internal oversight and “compensated, where appropriate, affected clients,” it said.
Assets belonging to consulting clients in Florida “grew substantially during the years we provided services to them,” Merrill said.
The company was acquired by Charlotte, North Carolina-based Bank of America Corp last month.
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