Bank of America's Merrill Lynch division has agreed to pay $415m (£279.2m) for misusing customer cash to free up money for its own trading activities, the Securities and Exchange Commission (SEC) announced today.
An SEC investigation revealed that the firm abused money which should have been kept in a reserve account to finance its own trading activities between 2009 and 2012 to the tune of billions of dollars a week, which violates the SEC's Customer Protection Rule.
The SEC also discovered that the firm had failed to keep fully-paid for customer securities in accounts that would be protected from third party claims should the firm collapse, which is, again, a requirement of the Customer Protection Rule.
In particular, between 2009 and 2015, Merrill Lynch held as much as $58bn a day of customer securities in a clearing account that, the SEC statement read, should the firm have collapsed, "customers would have been exposed to significant risk and uncertainty of getting back their own securities".
Merrill Lynch has also admitted wrongdoing to settle the charges.
"The rules concerning the safety of customer cash and securities are fundamental protections for investors and impose lines that simply can never be crossed," said Andrew Ceresney, director of the SEC's Division of Enforcement. "Merrill Lynch violated these rules, including during the heart of the financial crisis, and the significant relief imposed today reflects the severity of its failures."
Merrill Lynch had not responded to City A.M.'s request for comment at time of writing. However, in a statement to Reuters, Merrill Lynch spokesman William Halldin 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.
The SEC also announced today that it would be suing William Tirrell, Merrill Lynch’s head of regulatory reporting at the time to Customer Protection Rule violations occurred. The SEC alleges that Tirrell was "ultimately responsible for determining how much money Merrill Lynch would reserve in its special account, and failed to adequately monitor the trades and provide specific information to the firm's regulators about the substance and mechanics of the trades".
Tirrell's lawyer Steven Witzel told Reuters: "While we are disappointed that the SEC filed this action, Tirrell looks forward to the opportunity to vindicate himself."