Merrill pays $10 million to settle fraud charges

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If regulators needed another reason to step up their oversight of Wall Street brokers they got it on Tuesday in a settlement between Merrill Lynch and the Securities and Exchange Commission.

Merrill is paying $10 million to settle accusations that between 2002 and 2007 its brokers overcharged wealthy customers and broke confidentiality agreements in the pursuit of profit.

The behavior was ‘improper and contrary to the agreements the firm had with its customers,’ the settlement said.

The settlement comes just days after an SEC study recommended that Wall Street brokers should be held to a higher standard -- a so-called fiduciary standard -- than they have been in the past.

Under the fiduciary standard, brokers would be obligated to act in the best interest of the client, as has long been the requirement for other investment advisors.

Investors working with Merrill’s brokers were told that information about their trades would be kept confidential. But, according to the settlement, between 2003 and 2005 some brokers shared this information with Merrill’s proprietary traders, who were trading for Merrill’s own in-house account.

In a number of instances, the proprietary traders used the client information to immediately place similar trades. In one case, after receiving information about a client trade, a proprietary trader sent back an instant message saying, ‘[I] always like to do what the smart guys are doing.’

At other times, between 2002 and 2007, the settlement says Merrill brokers overcharged big institutional clients for stock orders -- buying big blocks of stock for one price and telling the client that it had cost a higher price.

Merrill has since been bought by Bank of America.

In a statement, Bank of America spokesman Bill Haldin said, ‘Merrill Lynch adopted a number of policy changes to ensure separation of proprietary and other trading and to address the SEC’s concerns. Merrill Lynch also voluntarily implemented enhanced training and supervision to improve the principal trading processes at the Firm.’

-- Nathaniel Popper