March 24 (UPI) — Bank of America Merrill Lynch has agreed to pay a record $42 million fine to the state of New York for fraudulent activity related to its electronic trading services.
New York Attorney General Eric Schneiderman announced the settlement Friday. An investigation of BoAML’s electronic trading services revealed a fraudulent “masking” scheme, designed to mislead clients about entity responsible for executing in-house orders, the state said.
Though BoAML told its customers it was executing trade orders themselves, they were in reality routing them to electronic liquidity providers, including Citadel, Two Sigma and Knight. The bank used masking codes to make the trades.
“Bank of America Merrill Lynch went to astonishing lengths to defraud its own institutional clients about who was seeing and filling their orders, who was trading in its dark pool, and the capabilities of its electronic trading services,” Schneiderman said in a statement.
The investigation showed BoAML began the masking scheme as early as 2008 and that at least 16 million client orders were affected.
In addition to masking efforts, including the production of false transaction reports, investigators with the attorney general’s office in New York uncovered “other inaccurate representations to investors about BofAML’s electronic trading services” — all part of a broader effort to make the bank’s “electronic trading services look more sophisticated and safer than they really were.”
Officials with Bank of America Merrill Lynch claim they began to address transparency problems related to their electronic trading services several years ago.
“The settlement primarily relates to conduct that occurred as long as 10 years ago,” BoAML told CNBC in an email. “At all times we met our obligation to deliver the best prices to clients. About five years ago, we addressed the issues concerning communicating to clients about where their trades were executed.”