The country’s largest bank, Bank of America (BAC), has agreed to remit $430M in settlement cash for violating bank regulatory rules. These rules are meant to protect banking customers’ funds and safeguard investors against misleading disclosure statements for the buying and selling of securities.
Part of the settlements include $415 million, which will be paid by North Carolina-based BAC in response to allegations that the Merrill Lynch unit of the financial institution misused cash from brokerage customers from 2009 to 2012. According to the report, the money was used to finance trading activities and generate profits.
Although SEC regulations require a broker to maintain trading funds in a reserve account, Merrill Lynch did not follow suit but used the money for complex option trades. The trades, in turn, artificially reduced the amount of money that required safeguarding. The practice permitted billions of dollars to be released each week that Merrill Lynch used to finance its own trading.
According to the Securities and Exchange Commission (SEC), brokerage customers may have been “exposed to a massive shortfall . . .” if the options trades had failed. The SEC, at the same time, announced that they are charging William Tirrell with responsibility with the alleged incident. Tirrell served as the head of regulatory reporting at the stock trading firm during the trading event. Mr. Tirrell is challenging the regulator’s allegations.
In addition, Merrill Lynch has agreed, separately, to pay a $10 million SEC settlement for making misleading statements to investors when offering structured notes connected with the brokerage firm’s proprietary volatility index. The notes, which were issued by BAC, featured disclosure statements that were drafted and reviewed by Merrill Lynch.
Not only that, the Financial Industry Regulatory Authority has also fined Merrill Lynch $5 million over the said disclosure violation. According to BAC, the settlement will not impact second-quarter 2016 earnings for the bank.