Wall Street Giants Hit with $60 Million Fine

Two prominent financial giants, Wells Fargo and Merrill Lynch, are facing a combined $60 million penalty from the U.S. Securities and Exchange Commission (SEC) over allegations of mishandling their cash sweep programs, which may have harmed their advisory clients.

The SEC claims that both firms failed to develop proper written procedures for their bank deposit sweep programs (BDSPs), a tool typically used by financial advisors to invest clients’ unutilized cash. These programs are meant to generate interest on idle funds, providing an alternative to holding cash in non-interest-bearing accounts.

However, according to the SEC, Wells Fargo and Merrill Lynch only offered low-yield options to clients, even as the Federal Reserve raised interest rates, creating a significant yield disparity.

During periods of interest rate hikes, the interest earned from these BDSPs fell far below what clients could have received from other options. The SEC’s investigation also revealed that both firms benefitted from this disparity by keeping returns artificially low. In total, the yield gap between BDSPs and other alternatives reached almost 4%, severely disadvantaging clients.

READ MORE:

Will Trump’s Crypto Policies Lead to Tax Relief for Crypto Investors?

Sanjay Wadhwa, the Acting Director of the SEC’s Division of Enforcement, emphasized the importance of ensuring that advisory firms have policies in place to protect clients’ best interests. He explained that these programs, which affect a large number of clients, should be designed to maximize returns and manage cash effectively.

As a result of these findings, Wells Fargo has agreed to pay a $35 million penalty, while Merrill Lynch will pay $25 million. Both firms have settled with the SEC, agreeing to halt further violations, though they did not admit to or deny the charges.

Kosta Gushterov

Kosta has been working in the crypto industry for over 4 years. He strives to present different perspectives on a given topic and enjoys the sector for its transparency and dynamism. In his work, he focuses on balanced coverage of events and developments in the crypto space, providing information to his readers from a neutral perspective.