Merrill Lynch and Harvest Volatility Management To Pay $9.3M Over CYES Strategy
SEC Alleges That Investors Ended Up Losing Money and Paid Higher Fees
According to the US Securities and Exchange Commission (SEC), Merrill Lynch and Harvest Volatility Management have consented to pay a combined $9.3M penalties and disgorgement to settle charges accusing both firms of exceeding client investment limits when employing the Collateral Yield Enhancement Strategy (CYES). This purportedly cost customers to pay higher fees and suffer investment losses.
Shepherd Smith Edwards and Kantas CYES Investor Loss Lawyers (investorlawyers.com) have been investigating Merrill Lynch and the other broker-dealers—JP Morgan, Morgan Stanley, Fidelity, Jeffries, Charles Schwab, and others—that touted and sold Harvest Volatility Management Strategies as a safe means for customers to make additional income from their investment portfolios. Harvest Volatility Management is the main investment adviser and portfolio manager for CYES.
The SEC’s order described the Collateralized Yield Enhancement Strategy as aiming to create returns by “collecting options premiums from a portfolio of short-dated options spreads on the S & P 500 Index: selling options to generate premium while simultaneously purchasing further out-of-the-money options to manage risk.”
However, for about two years starting in 2016, Harvest allegedly let a number of client accounts exceed their exposure limits, in some cases by 50% or more. Merrill Lynch purportedly knew about the excessive exposure levels but failed to properly notify the clients that were impacted.
The broker-dealer is also accused of introducing ultra-high-net-worth clients to CYES in return for getting paid commissions and part of Harvest’s incentive and management fees. The SEC said that this included $2M in excessive management fees and about $1M in excess commissions.
Harvest and Merrill Lynch settled the SEC’s charges but without denying or admitting to the findings.
How Can Our CYES Investor Loss Lawyers Help?
Shepherd Smith Edwards and Kantas is well-informed about the Collateral Yield Enhancement Strategy, which, like other Yield Enhancement Strategies, is an options trading strategy involving the broker-dealer writing options on an index that is supposed to earn a customer money. The brokerage firm uses the customer’s assets as collateral to write and make a premium on options.
Unfortunately, these risky, complex investing strategies always seem to imply that enhanced yield can be obtained without an increase in risks. This is inaccurate. Yet a lot of brokers and investment advisors likely believed CYES was a suitable and safe option for their customers. They should have done the necessary due diligence to make sure that was, in fact, the case.
The truth is that with Harvest Volatility Management’s CYES there was a serious risk/reward issue. Not only did the product enhance yield by just a few percentage points, but also investors were exposed to exponentially greater losses rather than gains.
Our Yield Enhancement Strategy fraud attorneys represent investors, including accredited investors, high-net-worth investors, and ultra-high-net-worth investors in recouping the damages they are owed by broker-dealers that unsuitably recommended this approach to them or made misrepresentations and omissions about this options trading strategy.
We understand the complexity of these types of claims and how to maximize an investor’s chances for financial recovery. Our CYES Investor Loss Lawyers recently secured a $468K Yield Enhancement Strategy award for two investors against UBS.
Just because a regulator has filed civil charges against a brokerage firm does not mean you cannot file your own claim alleging financial advisor misconduct or negligence. To determine whether you have grounds for pursuing damages from Merrill Lynch or any other broker-dealer that may have unsuitably recommended Harvest Volatility Management’s CYES strategy, call our CYES Investor Loss Lawyers at (800) 259-9010 today or fill out this form to schedule your free, initial case assessment.