Broker-Dealer Litigation - Greenberg Traurig LLP

f. Failure to Supervise
Q.1.f
In re BNY Mellon Sec. LLC, Release No. 63724, 2011 SEC LEXIS 252 (Jan. 14, 2011).
The Commission accepted an offer of settlement from BNY Mellon Securities LLC, a
registered broker-dealer (the “Firm”). The Commission alleged that the Firm failed reasonably
to supervise its institutional order desk and traders over a period of more than eight years in
connection with the Firm’s best execution obligations, in violation of Section 15(b)(4)(E) of the
Securities Exchange Act of 1934. Specifically, the Firm failed to establish reasonable
procedures for its best execution committee concerning how to follow up on best execution
exception reports. The Commission censured the Firm and ordered it to pay disgorgement of
$19,297,016, prejudgment interest of $3,748,431, and a $1,000,000 civil fine. Additionally, the
Firm agreed to retain an independent distribution consultant to administer the distribution of the
settlement proceeds through a Fair Fund.
Q.1.f
In re Merrill Lynch, Pierce, Fenner & Smith Inc., Release No. 63760, 2011 SEC LEXIS 280
(Jan. 25, 2011).
The Commission accepted an offer of settlement from Merrill Lynch, Pierce, Fenner &
Smith Incorporated, a registered broker-dealer (the “Firm”). The Commission’s complaint
alleged that the Firm’s market making desk improperly disclosed customer order information to
the Firm’s proprietary traders, who then misused the information to place similar orders. The
Commission’s complaint further alleged that the Firm improperly charged institutional and high
net worth customers an undisclosed mark-up or mark-down, in addition to a commission
equivalent, on certain riskless principal trades for which it had agreed only to charge a
commission equivalent. Additionally, on numerous occasions, the Firm failed to make records
of price guarantees that were part of the terms and conditions of institutional customer orders.
As a result of this conduct, the Commission found that the Firm willfully violated Section
15(c)(1)(A) of the Securities Exchange Act of 1934 by effecting transactions in securities by
means of manipulative, deceptive or other fraudulent devices or contrivances, willfully violated
Section 15(g) of the Exchange Act by failing to establish written policies and procedures
designed to prevent the misuse of material, nonpublic information, willfully violated Section
17(a) of the Exchange Act and Rule 17a-3(a)(6) thereunder by failing to make records of certain
terms and conditions of customer orders, and failed reasonably to supervise its traders. The
Commission ordered the Firm to cease and desist from committing or causing any violations and
any future violations, censured the Firm and ordered it to pay a $10 million civil penalty.
In re Smith, Release No. 63834, 2011 SEC LEXIS 390 (Feb. 3, 2011).
Q.1.f
The Commission accepted an offer of settlement from Smith, president, CEO and partowner
of a registered broker-dealer (the “Firm”). In an earlier action brought by the
Commission, a federal district court entered a final judgment against Keating, also a part-owner
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