The Securities and Exchange Commission (SEC) announced charges against Harvest Volatility Management and Merrill Lynch, Pierce, Fenner & Smith Inc. on Wednesday, saying they failed to abide by client instructions.
Merrill Lynch and Harvest Volatility Management Hit with $9.3m Penalty By SEC for Ignoring Client Instructions
According to the SEC’s complaint, Harvest, as the primary investment adviser and portfolio manager for the Collateral Yield Enhancement Strategy (CYES), allowed numerous client accounts to exceed their designated investment limits.
It led to higher fees, increased market exposure, and ultimately, investment losses for clients.
Merrill Lynch, which introduced clients to Harvest and received a portion of the management fees, was alleged to be aware of the excessive exposure but failed to adequately inform its clients.
“Harvest and Merrill neglected to adopt and implement policies and procedures reasonably designed to ensure that they disclosed all material facts to their clients and alerted them to the excessive exposure,” said the SEC.
The SEC’s action seeks to hold Merrill and Harvest accountable for their misconduct. It said it has recovered over $6 million in excess fees tied to the options trading strategy.
The firms have agreed to pay a combined $9.3 million in penalties and disgorgement to settle the SEC’s claims.
“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,” said Mark Cave, Associate Director of the SEC’s Enforcement Division. “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.”
