https://www.cnbc.com/2018/03/23/bank-of-america-in-42-million-settlement-for-masking-trading.html
Bank
of America's Merrill Lynch routinely misled customers by telling them billions
of stock trades had been managed in-house when they were actually turned over
to outside firms, part of a five-year scheme that New York's attorney general
says made the bank's trading services appear more sophisticated than they were.
On
Friday, the attorney general announced a $42 million settlement with Bank of
America over what it called the "masking" strategy, which was applied
to 16 million client trade orders between 2008 and 2013, representing over 4
billion traded shares.
New
York's Eric Schneiderman said Bank of America admitted to having undisclosed
agreements with electronic trading firms Citadel Securities, Knight Capital, D.
E. Shaw, Two Sigma Securities and Madoff Securities to handle the trades
instead.
"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," the attorney general said in a statement.
The
misleading activity began in 2008. Bank of America hid the secret trading
activity by reprogramming its systems to alter confirmations sent to clients about
how their trades were handled. Bank of America employees referred to this
activity as "masking," Schneiderman said.
In
an emailed statement to CNBC, Bank of America said, "The settlement
primarily relates to conduct that occurred as long as 10 years ago. 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."
Bank
of America was also accused of making inaccurate representations to investors
about its trading services. It told them that as many as 30 percent of trades
in an internally managed electronic trading pool came from retail investors,
for example, when it was really more like 5 percent.
Two
years ago, Schneiderman struck settlements with Credit Suisse, Barclays and
Deutsche Bank over trading abuses. Credit Suisse and Barclays paid $30 million
and $35 million, respectively, to settle allegations they misrepresented to
customers how trades were handled in so-called dark pools, which are private
electronic trading sites where buyers and sellers are supposed to be protected
from predatory high-speed trading behavior. Deutsche Bank paid $18.5 million to
settle allegations it engaged in fraud in its trade order routing practices.
The
three banks also settled parallel investigations with the Securities and
Exchange Commission.