There has been a lot of commotion about Merrill Lynch recently. The reason for this is that the company is being sued due to shady practices. As it is quite well-known, popular, and has a significant influence on the market, it is no wonder it attracted so much media attention.
If you don’t know much about it, Merrill Lynch is the wealth management division of Bank of America. Its origins go back to January 6, 1914, when it was opened by Charles E. Merrill. Headquarters is in New York City, more precisely in Manhattan. It occupies the building of the Four World Financial Center, all of the 34 stories. Additionally, it manages $2.2 trillion in client assets, which gives you an idea of how significant it is for the financial market. Also, about 15,000 financial advisors are working in this company. It is no surprise that shady practices of a huge business like this have attracted so much attention. Media are all over this story, spreading the truth to the world. If you want to know more, click here.
Merrill Lynch was sued because it misled investors in structured notes and had to pay $10 million in penalties to settle charges. This company made some misleading statements and offered materials connected to a proprietary volatility index. It is no wonder some investors hired lawyers for filing Merrill Lynch lawsuit. They want to protect themselves, as well as their investments.
Failure to disclose
These notes were subject to a sales commission of a 2 %, and an annual fee of 0.75 %. Because of the impact of these expenses over the period of 5 years, investors would earn back their original investment if there was an increase of the volatility index by 5.93 % from the starting value. However, the company failed to disclose a third cost included in these materials. It imposed 1.5 % in costs of the index value every three months.
Employees of Merrill Lynch didn’t reveal the influence of the execution factor, due to the absence of adequate procedures and policies to ensure this doesn’t happen. If you are not familiar with this term, failure to disclose is an offense, and it includes situations when a person is not telling the whole truth about a particular investment. Keeping some characteristic a secret can result in financial losses for the investors.
This is not the first time this company was a part of the case that involves misleading statements regarding structured notes. They made false statements in offering materials in structured notes in 2015 and had to pay almost $20 million for settling charges. Information about these products must be complete, and accurate. Also, investors must receive all material facts. In the economic field, investment protection is everything, and you need to know all the information before deciding whether to invest cash in something or not. Merrill Lynch violated the law that forbids obtaining money or property by providing material misstatements when offering or selling securities.