In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Admin. Proc. File No. 3-22173
In the Matter of Harvest Volatility Management LLC
Admin. Proc. File No. 3-22174
On September 25, 2024, the Commission issued two separate, but related Orders instituting and simultaneously settling administrative and cease-and-desist proceedings, against Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), a registered broker-dealer and investment adviser, and Harvest Volatility Management LLC (“Harvest Volatility”), a registered investment adviser (collectively, the “Respondents”). In the Orders, the Commission found that from March 2016 to April 2018, Merrill Lynch referred certain clients to a third-party investment adviser, Harvest Volatility, to manage an option overlay strategy, more specifically, Harvest Volatility’s Collateral Yield Enhancement Strategy, pursuant to the terms of an Investment Management Agreement (“IMA”). In the Orders, the Commission found that Harvest purchased and sold options contracts at levels materially above the levels clients authorized in the IMA. By failing to comply with the IMA, Harvest Volatility caused hundreds of clients to be over exposed to the strategy, resulting in higher fees and, during certain periods, financial losses.
The Commission ordered the Respondents to pay a collective total of $9,300,000.00 in disgorgement, prejudgment interest, and civil money penalties. In each of the Orders, the Commission also created a Fair Fund, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, so the penalty collected, along with the disgorgement and prejudgment interest collected, can be distributed to harmed investors, and further ordered that it may be added to or combined with any other fund established in any related action arising out of the same facts. See the Commission’s Orders: Release Nos.
In accordance with the Orders, the $9,300,000.00 collected from the Respondents has been combined (collectively, the “Fair Fund”) and deposited in a Commission-designated account at the U.S. Department of the Treasury, and any accrued interest will be added to the Fair Fund.
On March 5, 2025, the Commission issued an order appointing Miller Kaplan Arase LLP, as the Tax Administrator of the Fair Fund. See the Commission’s Order: Release No. 34-102527.
On September 3, 2025, the Commission issued an order appointing Rust Consulting, Inc. as the Fund Administrator to oversee the administration and distribution of the Fair Fund, and set the administrator’s bond amount. See the Commission’s Order: Release No. 34-103849.
On December 17, 2025, the Commission published a notice of the proposed plan of distribution and opportunity for comment and simultaneously published the proposed plan of distribution (“Proposed Plan”). The notice provided the public with 30 days to submit their comments on the Proposed Plan. See the Commission’s Notice: Release No. 34-104426 and the Proposed Plan.
The Proposed Plan provides for the distribution of the Net Available Fair Fund (as defined in the Proposed Plan) to investors based on the management fees paid to the Respondents for investments in the Collateral Yield Enhancement Strategy that exceeded contractual limits from March 1, 2016, through April 30, 2018 as calculated by the methodology used in the Plan of Allocation outlined in the Plan.
For more information, please contact the Commission:
Office of Distributions
Email: ENFOfficeofDistributions@sec.gov
Last Reviewed or Updated: Feb. 9, 2026