Merrill Lynch Settles SEC Probe in Largest Customer Protection Settlement in Agency's History

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June 23, 2016

Jordan A. Thomas comments on whistleblower clients leading to Bank of America’s $415M SEC enforcement action

Bank of America Corp's Merrill Lynch brokerage unit will pay $415 million and admit to wrongdoing to settle charges that it misused customer cash in the largest customer protection settlement in the United States in the Securities and Exchange Commission’s (SEC) history. Merrill Lynch will pay $57 million in disgorgement and interest and a $358 million civil penalty while admitting to wrongdoing. The SEC alleged that the bank violated the SEC's Customer Protection Rule by engaging in complex options trades that artificially reduced the amount it needed to keep in a reserve account, freeing up cash it used for its own trading activities.

The SEC is also suing Merrill's former head of regulatory reporting, William Tirrell, who held the position when Merrill was misusing customers' cash. Tirrell was responsible for determining how much in assets to reserve for customers' benefit if Merrill's business failed, the SEC said.

Tirrell failed to adequately monitor the trades and provide specific information to Merrill's regulators about the trades, the SEC said.

Merrill Lynch also violated an SEC rule by using language in severance agreements to stop employees from coming forward to the SEC with information, the SEC said. The company has since revised the agreements and launched a whistleblower training program for employees.

The case came to light after multiple former Bank of America executives reported the company's misconduct to the SEC, said Jordan Thomas, the whistleblowers' New York lawyer.

Former Bank of America executives reported the customer reserve fund violations and the misleading disclosure to the SEC and cooperated as official whistleblowers with the investigation that led to the $415 million settlement, said Jordan Thomas, a Labaton Sucharow law firm attorney who represented the group of whistleblowers.

"This case will serve as a cautionary tale for other financial institutions about how quickly little mistakes, breakdowns in judgment and old-fashioned greed can snowball into expensive front-page scandals," Thomas said.