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Sept. 25 (UPI) — The U.S. Securities and Exchange Commission said Wednesday that Harvest Volatility Management LLC and Merrill Lynch, Pierce, Fenner & Smith Inc. have agreed to pay a combined $9.3 million in penalties to resolve SEC charges. The companies exceeded investment limits over a two-year period, causing clients to pay higher fees and incur investment losses, the SEC said in a statement Wednesday.
The penalties imposed against the two companies include recovery of more than $6 million in excess fees.
The SEC said this enforcement 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.”
The case involved complex options trading.
“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,” said the SEC Enforcement Division’s Mark Cave in a statement.
The SEC said that starting in 2016, Harvest let accounts exceed risk exposure levels, including dozens of accounts that exceeded the limits by 50% or more.
“Merrill and Harvest received larger management fees when investors’ exposure levels climbed above pre-set levels and exposed investors to greater financial risks,” the SEC said.
Merrill’s role, the SEC said, was introducing its clients to Harvest and then receiving part of Harvest’s management and incentive fees along with trading commissions.
Harvest and Merrill are paying the penalty without admitting or denying the SEC’s findings.
Merrill will pay $3.8 million and Harvest will pay $5.5 million, according to the SEC.