The Securities & Exchange Commission charged Merrill Lynch and Harvest Volatility Management with complex options trading strategy failures that led to clients paying excessive fees and being exposed to excessive market risk, resulting in investor losses. Specifically, Harvest Volatility exceeded clients’ designated investment limits and Merrill Lynch failed to detect and/or inform investors about the problem.
According to the SEC's cease and desist order, Merrill Lynch approved Harvest Volatility’s Collateral Yield Enhancement Strategy ("CYES") for its investors, a complex options investment strategy in which Merrill Lynch customers pledged existing cash or investment assets held in their Merrill Lynch accounts as collateral for trading on the S&P 500 Index (“SPX”). Investors then paid Merrill Lynch and/or Harvest Volatility management and other fees based on the amounts exposed.
As part of this strategy, participants in CYES set maximum investment exposure levels, or limits on what they wanted to risk as part of this complex strategy, which also inherently limited their management and other fees. The SEC found that Merrill Lynch and Harvest Volatility nonetheless exceeded these preset limits and failed to inform investors of this deviation, in turn exposing customers to excessive fees, excessive market risk and resulting in losses.
The SEC found that Merrill Lynch violated the Advisers Act's provision that prohibits "any act, practice, or course of business which is fraudulent, deceptive, or manipulative" and ordered Merrill Lynch, Pierce, Fenner & Smith to pay $2 million in disgorgement, $800,000 in interest, and a $1 million civil penalty.
If you invested with Harvest Volatility Management, Merrill Lynch or with a broker or financial adviser who unsuitably recommended you participate in an excessively risky and complex options investment strategy, or failed to respect your spending or investing limits, thus exposing you to excessive risk, the incurrence of excessive fees and sales charges, or other losses or damages, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.