Merrill Lynch, Harvest Volatility Allegedly Ignored Instructions
Merrill Lynch (CRD# 7691) and Harvest Volatility Management (CRD# 146869) caused customers to pay higher fees and incur losses, according to charges filed by the Securities and Exchange Commission. MDF Law is investigating the broker-dealer firms for similar conduct. If you are a current or former client who suffered losses, contact us for a free consultation. More information about the charges against these firms is available in this post.
SEC Alleges CYES Options Strategy Compliance Failures
On September 25, 2024, the SEC announced charges against Merrill Lynch and Harvest Volatility Management. According to a litigation release, the charges alleged that these firms exceeded clients’ designated investment limits over the course of two years. As a result, the SEC alleged, these clients paid higher fees, were “subjected to increased market exposure,” and suffered losses on their investments.
The charges stem from Merrill Lynch’s Collateral Yield Enhancement Strategy, an options trading strategy managed by Harvest Volatility. As the SEC alleges, that firm “allowed scores of accounts to exceed the exposure levels that investors designated when they signed up to the CYES strategy, including dozens of accounts that exceeded the limit by 50 percent or more.” Both Harvest and Merrill Lynch received increased management fees from investors whose exposure levels exceeded those which were pre-set. At the same time, however, these investors were “exposed to greater financial risks.”
According to the SEC, Merrill Lynch introduced customers to Harvest Volatility Management. Not only did it receive “part of Harvest’s management and incentive fees,” it also allegedly received trading commissions. The firm knew that CYES customers’ exposure exceeded preset levels, per the SEC; however, it did not inform those affected by this exposure. Both firms allegedly “neglected to adopt and implement policies” designed to ensure that they alerted clients of relevant facts about their exposure.
Merrill & Harvest Volatility Pay 7-Figure Penalties
Merrill Lynch and Harvest Volatility Management reached separate settlements with the SEC to resolve these allegations. Neither admitted or denied the findings; both were censured and agreed to cease-and-desist orders. Merrill Lynch agreed to pay a penalty of $1 million, as well as disgorgement and interest of $2.8 million. Harvest agreed to a penalty of $2 million, as well as $3.5 million in disgorgement and interest.
The litigation release features an SEC official’s statement about the charges. “In this case, two investment advisers 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,” he said. “Today’s action holds Merrill and Harvest accountable for dropping the ball in executing these basic duties to their clients, even as their clients’ financial exposure grew well beyond predetermined limits.”
CYES Complaints? MDF Law Has Your Back
MDF Law’s dedicated broker fraud attorneys have recovered more than $100 million in losses for the victims of broker fraud. We accept cases on a contingency basis: clients only pay a fee if they win their case. We currently offer free consultations to investors across the country. If you are a Merrill Lynch customer who lost money investing in CYES, call us at 800-767-8040 for a free consultation.