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Dec 17, 2018 News
By Kiana Wilburg
Central Bank Governor, Dr. Gobind Ganga has categorically stated that he and his team are aware of the “troubling” past of Merrill Lynch.
As such, he will proceed with caution when it comes to any interests from the American Bank in managing Guyana’s oil money.
The Bank of Guyana head made this clear during an interview with this publication yesterday. He noted that Merrill Lynch has made its interest known, but the parameters of the role that they want to play are still being discussed.
Dr. Ganga noted however, that Bank of Guyana will be cautious in all of its engagements with potential investors.
“Central Bank will be cautious and we will be looking into the background of everyone who is coming to us. We will not be rushing into anything with our eyes closed. Proper due diligence will be done on them (Merrill Lynch) and anyone else so as to ensure we don’t expose ourselves to undue risk.”
The Central Bank head also stated that he and his team have taken careful note of the Sunday edition of this newspaper, which exposed aspects of Merrill Lynch’s troubling past.
This newspaper reported that the American firm has been at the heart of several bribery investigations and has been fined billions of dollars for fraud, misusing customer’s cash and exposing its clients to great financial risk.
In June 2016 for example, the Securities and Exchange Commission (SEC) announced that Merrill Lynch agreed to pay US$415 million and admit wrongdoing to settle charges that it misused customer cash to generate profits for the firm and failed to safeguard customer securities from the claims of its creditors.
In fact, an investigation found that Merrill Lynch violated the SEC’s Customer Protection Rule by misusing customer cash that rightfully should have been deposited into a reserve account. The probe revealed that Merrill Lynch engaged in complex trades that lacked economic substance and artificially reduced the required deposit of customer cash in the reserve account.
The manoeuvre freed up billions of dollars per week from 2009 to 2012 that Merrill Lynch used to finance its own trading activities. Had Merrill Lynch failed in the midst of these trades, the firm’s customers would have been exposed to a massive shortfall in the reserve account.
Merrill Lynch further violated the Customer Protection Rule by failing to adhere to requirements that fully-paid for customer securities be held in lien-free accounts and shielded from claims by third parties should a firm collapse. Had Merrill Lynch collapsed at any point, customers would have been exposed to significant risk and uncertainty of getting back their own securities.
“The rules concerning the safety of customer cash and securities are fundamental protections for investors and impose lines that simply can never be crossed,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.
“Merrill Lynch violated these rules, including during the heart of the financial crisis, and the significant relief imposed reflects the severity of its failures.” (https://www.sec.gov/news/pressrelease/2016-128.html)
In last March as well, Merrill Lynch and its parent company, Bank of America, agreed to pay a record US$42 million fine to the State of New York for fraudulent activity related to its electronic trading services.
New York Attorney General Eric Schneiderman announced that an investigation of the Bank’s electronic trading services revealed a fraudulent “masking” scheme, designed to mislead clients about the entity responsible for executing in-house orders, the state said.
Though the Bank told its customers that it was executing trade orders themselves, they were in reality routing them to electronic liquidity providers, including Citadel, Two Sigma and Knight. The bank used masking codes to make the trades.
“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 in a statement.
The investigation showed that Bank of America and Lynch began the masking scheme as early as 2008 and that at least 16 million client orders were affected.
In addition to masking efforts, including the production of false transaction reports, investigators with the attorney general’s office in New York uncovered “other inaccurate representations to investors about the Bank’s electronic trading services” — all part of a broader effort to make the bank’s “electronic trading services look more sophisticated and safer than they really were.”
Officials with Bank of America-Merrill Lynch claim they began to address transparency problems related to their electronic trading services several years ago.
“The settlement primarily relates to conduct that occurred as long as 10 years ago,” the Bank told CNBC in an email. “At all times, we met our obligation to deliver the best prices to clients. About five years ago, we addressed the issues concerning communicating to clients about where their trades were executed.” (https://www.upi.com/Bank-of-America-Merrill-Lynch-agrees-to-pay-NY-42-million-fine-for-fraud/7851521905381/)
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