Merrill Lynch, Harvest Volatility agree to pay $9.3M to resolve SEC charges

Merrill Lynch, Pierce, Fenner & Smith Inc., part of Bank of America (NYSE:BAC), and Harvest Volatility Management LLC have agreed to pay a combined $9.3M to settle the U.S. Securities and Exchange Commission’s claims that the firms exceeded clients’ designated investment limits over a two-year period beginning in March 2016, the regulator said on Wednesday.

That, in turn, resulted in clients paying higher fees, facing increased market exposure and incurring investment losses, the SEC alleged.

Specifically, the investment advisors “allegedly sold a complex options trading strategy to their clients, but failed to abide by basic client instructions or implement and adhere to appropriate policies and procedures,” Mark Cave, associate director of the SEC’s Enforcement Division, said in a statement.

Harvest acted as the main investment advisor and portfolio manager for an options-trading strategy, according to the SEC’s order. The firm, starting in 2016, enabled scores of accounts to exceed the exposure levels that investors designated when they signed up for the strategy.

Merrill had introduced its clients to Harvest and received part of Harvest’s management and incentive fees, as well as trading commissions, the SEC said, adding that Merrill was aware that investors’ exposure to the strategy was exceeding pre-set exposure levels and failed to inform affected investors.

Without admitting or denying the SEC’s findings, Harvest agreed to pay a $2M penalty and another $3.5M in disgorgement and prejudgment interest. Merrill agreed to fork over $1M and another $2.8M in disgorgement and prejudgment interest.

Bank of America (BAC) shares slipped 0.9% in Wednesday morning trading.