SEC Charges Harvest and Merrill Lynch for Client Mismanagement

On Wednesday, the Securities and Exchange Commission (SEC) announced significant charges against Harvest Volatility Management and Merrill Lynch, Pierce, Fenner & Smith Inc., alleging that both firms failed to adhere to client instructions regarding investment limits.

According to the SEC's complaint, Harvest, serving as the primary investment adviser for the Collateral Yield Enhancement Strategy (CYES), allowed several client accounts to exceed their designated investment parameters. This oversight resulted in higher management fees, increased market exposure, and ultimately led to substantial investment losses for clients.

The SEC criticized Merrill Lynch for allegedly being aware of the excessive exposure but not adequately informing its clients. Mark Cave, Associate Director of the SEC's Enforcement Division, stated, "Two investment advisers allegedly sold a complex options trading strategy to their clients, but failed to abide by basic client instructions or implement and adhere to appropriate policies and procedures."

The SEC seeks to hold both firms accountable for their misconduct, recovering over $6 million in excess fees associated with the trading strategy. In response to the charges, Harvest and Merrill have agreed to pay a combined total of $9.3 million in penalties and disgorgement to settle the SEC's claims.