Merrill Lynch agreed to pay $10 Million to settle charges levied by the Securities and Exchange Commission (“SEC”), as detailed in a recent SEC release. The release indicates that Merrill Lynch (subsidiary of Bank of America Corporation) was responsible for misleading statements in offering materials provided to retail investors for structured notes linked to a proprietary volatility index.
The SEC order instituting a settled administrative proceeding reveals that the offering materials failed to disclose certain costs associated with the structured notes. Based on this omission, the SEC alleged, investors were mislead to believe that a return of 5.93% from starting value of the volatility index till the maturity date was sufficient to earn back their original investment at maturity. The undisclosed cost was the “execution factor” that imposed a cost of 1.5% of the index value each quarter. The SEC’s order finds that Merrill Lynch did not have in place effective policies or procedures to ensure its personnel drafted and approved disclosures that adequately disclosed the impact of the execution factor.
This settlement follows an October 2015 settlement of $19.5 Million paid by UBS regarding misleading statements in structured note offering materials.
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