(Bloomberg) -- A division of Bank of America Corp. and Harvest Volatility Management LLC agreed to pay a combined $9.3 million to settle US Securities and Exchange Commission allegations that the firms exceeded clients’ investment limits, resulting in higher fees and losses, as they nudged clients into complex options-trading strategies.
Over a two-year period starting in March 2016, Harvest and BofA’s Merrill Lynch, Pierce, Fenner & Smith Inc. unit sold investments that exceeded clients’ risk limits, with Merrill steering clients to Harvest and sharing part of the firm’s management and incentive fees along with trading commissions, the SEC said in a statement Wednesday. Merrill was aware that investors’ exposure exceeded preset levels but failed to inform affected clients, the SEC 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,” Mark Cave, associate director of the SEC’s enforcement division, said in the statement.
The firms didn’t admit to or deny the SEC’s findings as part of the settlement. Harvest will pay a total of $5.5 million in penalties and disgorgement, while Merrill will pay a total of $3.8 million, the SEC said.
“We ended all new enrollments with Harvest in 2019 and recommended that existing clients unwind their positions,” BofA spokesman William Halldin said in an emailed statement.
A lawyer for Harvest Volatility didn’t immediately respond to requests for comment.
--With assistance from Katherine Doherty.
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