Bank of America Merrill Lynch will pay $42 million to New York state to settle allegations that it routed client orders to high-speed trading firms without telling the customers that it was routinely doing so.
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New York Attorney General Eric Schneiderman said Friday that the bank had secret agreements with certain firms such as Citadel Securities and Two Sigma Securities to send them clients' orders to buy and sell stocks.
Those agreements were kept concealed from clients over a five-year period, the attorney general said.
Another one of the firms to which the bank sent orders was Madoff Securities, the trading firm run by convicted Ponzi-scheme operator Bernie Madoff, according to Schneiderman.
Bank of America applied its "masking" strategy to more than 16 million client orders between 2008 and 2013, representing more than 4 billion traded shares, the New York attorney general's office said.
"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," Schneiderman said.
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Bank of America admitted violating the Martin Act, a broad New York state antifraud statute. A bank spokesman 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 and about five years ago we addressed the issues concerning communicating to clients about where their trades were executed," the spokesman said.