The SEC now penalizes two massive investment banks recovering more than $6 million of excess fees tied to options trading.
The Securities and Exchange Commission (SEC) has announced charges against Harvest Volatility Management LLC and Merrill Lynch, Pierce, Fenner & Smith Inc. for exceeding clients’ specified investment limits over a two-year period starting in March 2016.
This breach led to clients incurring higher fees, increased market exposure, and resulting investment losses.
As part of their settlements, Harvest and Merrill have agreed to pay a whopping $9.3 million in penalties and ‘disgorgement’ to resolve the SEC’s allegations, per a press release.
According to the SEC’s orders, Harvest served as the primary investment adviser and portfolio manager for the Collateral Yield Enhancement Strategy (CYES), which involved trading options in a volatility index to generate additional returns.
The SEC found that beginning in 2016, Harvest permitted numerous accounts to exceed the designated exposure levels set by investors when enrolling in the CYES strategy.
Some accounts exceeded these limits by 50% or more.
This situation resulted in Harvest and Merrill receiving increased management fees as clients’ exposure levels rose, thereby exposing investors to greater financial risks.
The SEC’s findings indicated that Merrill introduced its clients to Harvest and received a portion of Harvest’s management and incentive fees, along with trading commissions.
On top of that, the SEC determined that Merrill was aware that investors’ exposure to CYES exceeded the agreed-upon levels but failed to adequately inform affected clients, most of whom had existing advisory relationships with Merrill.
Both firms were criticized for not implementing reasonable policies and procedures to ensure transparency and compliance with client instructions.
Mark Cave, Associate Director of the SEC’s Enforcement Division, stated, “In this case, two investment advisers allegedly sold a complex options trading strategy to their clients but failed to adhere to basic client instructions or implement appropriate policies and procedures.
Today’s action holds Merrill and Harvest accountable for neglecting their fundamental duties to clients while their financial exposure exceeded predetermined limits.”
The SEC found that both firms violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7.
Without admitting or denying the findings, Harvest and Merrill agreed to be censured and comply with cease-and-desist orders, along with penalties of $2 million and $1 million, respectively.
Harvest will also pay $3.5 million in disgorgement and prejudgment interest, while Merrill will pay $2.8 million.
The SEC’s investigation was conducted by Bobby Gray, Matthew Finnegan, and Suzanne Romajas, under the supervision of Jeff Leasure and Mark Cave.
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Other Market News Today
RFK Jr. now shows his support on the MMTLP case after reposting a community post regarding investor questions for FINRA on X.
The MMTLP scandal is being recognized as one of the biggest Wall Street frauds of the decade.
Investors who held shares of MMTLP stock on the record date of December 12 would receive a preferred dividend of Next Bridge Hydrocarbon on Wednesday, December the 14th.
However, MMTLP stock stopped trading on Thursday, December 8 after FINRA delisted the security without notice or warning.
FINRA released a statement; however, failed to address a myriad of important questions to investors holding the security, which was no longer tradeable.
Since the events, the MMTLP community has sent over 40,000 letters to congress addressing their concerns, urging congressmembers to look into FINRA for potential fraud.
After ongoing publicity events, the Congressional Research Service has acknowledged the MMTLP community along with several reports published by FrankNez.
Republican figures such as JD Vance and now Robert F. Kennedy Jr., have shown their support in bringing light to the MMTLP fraud, which caused tens of thousands of investors to completely lose all their money as they were unable to close their positions.
On Monday, September 23, RFK Jr. reposted a post regarding the following 13 questions the MMTLP community feels FINRA should be answering:
- Who was involved in the decision-making process to halt the stock using U3 Halt code?
- Were any Broker Dealers, DTCC, AST, MMs or other Member firms consulted prior to the decision?
- Was DTCC consulted specifically?
- What was their determination based on their internal records including CNS and NSCC lending pools?
- How did they arrive at that determination?
- How many shares were moved by BDs into the “Obligation Warehouse”?
- What was the “extraordinary event” that caused the U3 Halt designation to be triggered?
- Have you had any communication with the OCC and why they allowed short shares to not be settled at the merger of TRCH and MMAT?
- How do you hold the short positions not settled?
- Why were the short positions not settled?
- Do you have the accurate accounting from all 105 BDs who had shares on record with DTCC showing their long, short, and IOU positions (naked)?
- Do you have all Broker-to-Broker clearing records (ex-clearing) from all member firms? Have you requested the information?
- Do you have all the sell tickets from all 105 BDs dating back 5 years on all TRCH, MMAT, and MMTLP trades from all member firms? If not, how are you going to accurately investigate what happened? Isn’t your roll oversight in this matter?
This is a developing story — for more MMTLP news and updates like this, join the newsletter or opt-in for push notifications.
Also Read: FINRA CEO Is Now Under Pressure On The MMTLP Case
More on MMTLP:
- Gary Gensler is Now Dodging MMTLP Inquires From Congress
- Senator Inquiries Now Grow in The MMTLP Scandal
- 15 Congress Members Have Now Requested MMTLP Update from SEC
- Bloomberg and WSJ Fail to Narrate Big MMTLP Story
- Transcripts Now Reveal Big MMTLP Fraud Investigations
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