Bank of America Merrill Lynch has admitted to misleading institutional clients on how orders were processed for more than 4 billion shares of stock. As a result, Bank of America (BAC) has agreed to pay a $42 million penalty for the scheme and other violations of New York securities law.
Bank of America Masking Scheme Worked with Market Makers
According to New York’s Attorney General, the bank doctored paperwork on 16 million orders in order to systematically mislead clients into thinking that stock trades were taking place in-house, when they were not.
Between 2008 and 2013, Bank of America had silent agreements with electronic market makers to secretly route trades to them, thereby misleading the bank’s institutional clients about who was handling and filling stock orders.
According to the investigation, Bank of America executives wanted to increase the volume of trades to electronic market makers "based on other revenue opportunities being discussed with them." The investigation did not clarify what the revenue opportunities were.
Bank of America Masking Scheme Hides Trade Locations
To mask the agreements with the electronic market makers, Bank of America reprogrammed its electronic trading system to automatically change trade confirmation messaging sent back to clients. The system replaced information about trade locations with a code to indicate trades happened in-house.
Bank of America told all clients that trades occurred in-house and when asked, denied that trades were routed to third-party, electronic market makers. Internally, the bank referred to the scheme as ‘masking’.
According to the settlement, the electronic market makers involved included high-frequency trading companies Citadel Securities, Knight Capital and the now-defunct Madoff Securities.
Bank of America Shares Fall as Result of Scheme
Company shares fell 5% after the announcement of the Bank of America masking scheme and the resulting $42 million penalty. The firm released a statement that acknowledged the scheme and said that it has since addressed issues with client communication.
Are You a Victim of Bank of America?
Authorities have confirmed that the scheme only involved institutional clients but some of those clients were mutual funds and pension funds that may be owned by non-institutional investors.
If you believe you are a victim of Bank of America’s scheme or believe you lost money as a result of stockbroker negligence, contact an experienced investment fraud attorney today.
Call an Investment Fraud Attorney Today
If you are looking for an investment fraud lawyer to review your rights and options, contact Dimond Kaplan & Rothstein, P.A. today to schedule a FREE consultation to review your rights and options. We may be able to help you recover your investment losses.