6.8.2009 The SEC settled a matter instituted against Michael A. Callaway whereby he is censured, must cease and desist from committing or causing any violations and any future violations of § 206(2) of the Investment Advisers Act of 1940 (Advisers Act), and must pay a $20,000 penalty. The Order finds that from at least 2000 through 2005, Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch), through its pension consulting services advisory program, breached its fiduciary duty to certain of the firm’s pension fund clients and prospective clients by omitting to disclose material information. During this time period, Callaway was an investment adviser representative for Merrill Lynch, and in that capacity owed a fiduciary duty to the firm’s pension fund clients to whom he provided advice. Those clients included public pension funds seeking advice in developing appropriate investment strategies and in selecting investment managers to manage the assets entrusted to their care. In providing such advice, Callaway omitted to disclose to some of the firm’s pension consulting clients that certain managers included in search results had not been vetted and approved in advance by Merrill Lynch Consulting Services in New Jersey. Callaway also failed to disclose material facts involving a conflict of interest inherent in clients’ use of Merrill Lynch’s transition management group. In addition, up to and including 2003, Callaway failed to disclose fully when entering into an arrangement for directed brokerage the facts creating a material conflict of interest inherent in recommending the use of directed brokerage to pay hard dollar fees. By omitting to disclose these facts to his clients, Callaway aided and abetted and caused Merrill Lynch’s violation of § 206(2) of the Advisers Act.
Click http://www.sec.gov/litigation/admin/2009/34-60071.pdf to access the SEC administrative action.