The Securities and Exchange Commission settled charges Friday against Merrill Lynch and two other firms who self-reported violations under the commission’s Share Class Selection Disclosure Initiative.
Eagle Strategies and Cozad Asset Management joined Merrill Lynch with self-reported violations related to disclosing conflicts of interest in the selection of mutual fund share classes, according to a news release from the SEC.
They represent the final cases under the self-reporting initiative announced Feb. 12, 2018, the release said. Including last week’s actions, the SEC said it has ordered more than $139 million to be returned to investors as part of the initiative.
The voluntary initiative allowed advisers an opportunity to self-report that they had failed to “fully and fairly disclose their conflicts of interests” in selecting for their advisory clients more expensive mutual fund share classes that paid 12b-1 fees when lower-cost share classes were available.
Self-reporting made advisors eligible for standard settlement terms that did not include the imposition of a civil penalty.
From March 11, 2019 through September 30, 2019, the SEC issued orders against 95 advisers that chose to participate in the initiative.
“This incredibly successful initiative led to the return of almost $140 million to harmed investors, stopped wrongful conduct, and highlighted the importance of an adviser’s obligations to provide full and fair disclosures to clients,” said C. Dabney O’Riordan, co-chief of the Asset Management Unit. “We continue to actively pursue disclosure failures that financially benefit the adviser to the detriment of the client.”
The SEC’s orders find that Merrill Lynch, Pierce, Fenner & Smith Incorporated and Eagle Strategies violated Section 206(2) of the Investment Advisers Act of 1940, and ordered that they are censured, that they cease and desist from future violations, that they pay disgorgement and prejudgment interest totaling over $425,000 and that they comply with certain undertakings, including returning the money to investors.
Improper Fees
Merrill Lynch, Pierce, Fenner & Smith self-reported violations between Jan. 1, 2014 and May 31, 2018. The firm agreed its advisors accepted 12b-1 fees they were not entitled to received had they acted with proper fiduciary duty. Merrill agreed to pay disgorgement of $297,394 and prejudgment interest of $27,982.
Eagle Strategies self-reported violations between Jan. 1, 2014 and March 30, 2016, and agreed to pay disgorgement of $89,977.57 and prejudgment interest of $11,112.89.
The SEC also charged Cozad Asset Management Inc., which self-reported its share class selection violations to the SEC in the months following the initiative deadline. The SEC found that Cozad failed to fully disclose the conflicts arising from its and its associated persons’ selection of more expensive mutual fund share classes for clients when lower-cost share classes for the same fund were available.
The SEC’s order finds that Cozad violated Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, and ordered that it is censured, that it cease-and-desist from future violations, that it pay disgorgement and prejudgment interest totaling over $400,000, as well as a $10,000 civil penalty, and that it comply with certain undertakings, including returning the money to investors.
Since September 2019, the commission has issued orders against two firms that were eligible to self report pursuant to the initiative, but failed to do so: Mid Atlantic Financial Management Inc. (ordered to pay $1,027,002 in disgorgement and prejudgment interest and a $300,000 civil penalty) and BPU Investment Management Inc. (ordered to pay $692,107 in disgorgement and prejudgment interest and a $235,000 civil penalty).
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.
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I have been attempting to cash in a Merrill Lynch inheritance left to me by my niece, who died suddenly at age 63 March 27, 2020. The runaround from Merrill Lynch has been frustrating. Repeatedly ‘not received’ or subsequent letters 9far apart!) ‘need further information’ from their standard form and initially required documents.
Last fall, they added that they needed my actual social security card. I’m 77 years old born before there SS was begun.I’d not had card requested for— decades. I had to request a copy, which led to learning that for my lifetime, I’d not known that when SS was started in 1947, some clerk had mistyped “Michael” to ” “MichEAl”. I then needed to get a copy of my birth certificate, so I could then get a corrected SS card. This during pandemic restrictions
Online SS guidelines I read ‘don’t share your card to prevent identity theft’ Keep card safe. But I refilled in another Merrill’s form for the 4th time in the past year, including the new requirement to add my SS card as a further proof of my identity —- in addition to previously provided passport, Driver’s license, Nexus Card, and tax documents that showed my SS #— provided several times over this last year. Nothing for several weeks again.
Two weeks ago, I called and reached ANOTHER rep, who then connected me to “his Supervisor” (The guy in desk sitting next to him??!)
“You didn’t fill in you Zip code”. But this time, I’d copied everything and mailed certified. I had begun filling in my Generic line “Address” with my physical address. But then had realized since no mail comes to the house, that was not what they’d need. So I filled in below “Mailing Address” and my PO Box # With Zip code. The rep said I’d have to resend “everything ” and include that house zip code for my physical address. I pointed out how crazy that was: He could fill it in, but that Zip was complexly beside the point. They had my mailing address WITH appropriate zip code on the form. “No, he had to follow the rules and it wasn’t HIM– rules.”
I began asking about regulatory agencies they’re answerable to… SEC?
“Yes. Well he’d send this application UP to Legal to see if they’d accept it as it was: “Incomplete”
“Will you call me back so I don’t have to start over — again?”
“Either I or legal will call you back after review”
Two weeks later, nothing.
$40,000 or thereabouts, though they refuse to disclose how much it is.
I am the court appointed Personal Representative and Heir to her Merrill Lynch account. They have all court documents, death certificate and all my identification.
Who can I go to to get Merrill Lynch to release these funds immediately?
What does it profit them to hold onto these funds?
Fed up, but wearying of this runaround… If I didn’t feel Old before this last year, I now feel like an Old person being taken advantage of, with nowhere to go.
Any direction for help?