Wall Street giant Merrill Lynch is paying US$9.5 million to settle allegations that it charged certain advisory clients undisclosed fees in connection with foreign exchange transactions.
The U.S. Securities and Exchange Commission (SEC) settled with Merrill Lynch for failing to properly disclose that it charged clients in its wrap accounts more than US$4 million in foreign exchange fees for transfers in and out of their accounts.
According to the SEC’s order, the firm disclosed that it charged markups on foreign currency exchanges, but it did not disclose an additional fee that it called a “production credit” that was often greater than the markup.
An example cited in the regulator’s order saw Merrill charge a total fee of US$105,800 for a US$19.3-million transaction that was comprised of a $9,520 markup and a “production credit” of over $96,000.
These fees, which it shared with its financial advisors, were referred to as commissions in internal documents, the regulator said.
“Investment advisers must ensure that they do not selectively disclose some fees but not others relating to a particular service,” said Antonia Apps, director of the SEC’s New York office, in a release.
“While Merrill Lynch disclosed the markups or markdowns charged on foreign currency exchanges, thousands of clients were left in the dark as to an often larger fee charged on these transactions and were charged millions of dollars in undisclosed fees,” she said.
In addition to failing to disclose the fees, the SEC also found that Merrill Lynch failed to adopt and implement policies and procedures to prevent its misleading disclosures.
Without admitting or denying the SEC’s findings, Merrill Lynch agreed to pay a US$4.8 million penalty, US$4.1 million in disgorgement and US$760,000 in interest. It also agreed to a cease-and-desist order, a censure, and to distribute funds to harmed clients.