Merrill Lynch charged with misleading investors
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Merrill Lynch agreed to pay $13.8 million in penalties Thursday on charges brought by federal regulators that the bank misled investors in asset-backed securities prior to the financial crisis in 2008.
Stemming from actions that took place before Merrill Lynch was acquired by the Bank of America in 2009, the charges brought by the Securities and Exchange Commission revealed faulty disclosures about collateral selection for two collateralized debt obligations that the investment brokerage firm structured and marketed. Collateralized debt obligations are investment securities that are put together with underlying debts, such as mortgages, and pay investors based on the cash flow brought in by the assets.
The SEC also charged that Merrill Lynch maintained 'inaccurate books' and records for a third CDO.
'Merrill Lynch marketed complex CDO investments using misleading materials that portrayed an independent process for collateral selection that was in the best interests of long-term debt investors,' said George S. Canellos, co-director of the SEC's Division of Enforcement, in a statement. 'Investors did not have the benefit of knowing that a prominent hedge fund firm with its own interests was heavily involved behind the scenes in selecting the underlying portfolios.'
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