Merrill Lynch officials said the two executives failed to properly supervise a currency trader who was accused of diverting profits on foreign currency transactions to the accounts of favored clients.
The trader had diverted losses on deals done for those clients to the accounts of others since 1995, the company said. The unidentified trader worked in Princeton, N.J. and London before leaving Merrill in April.
Merrill spokesman Nigel Webb estimated it will cost Merrill Lynch $10 million to reimburse clients who lost money.
The trader?s actions could affect as many as 200 institutional clients, such as pension funds, corporations, retail mutual funds and hedge funds, mostly in North America and Europe, according to the WSJ.
As a result of its probe, Merrill fired Tim Manna, the global head of its fixed-income unit, and David Jacob, who was in charge of the division’s operations in Europe, the Middle East and Africa.
The management shakeup led a third executive, Bob Browne – co-head of the fixed-income unit’s U.S. business – to resign, Webb said.
Webb declined to identify the trader but said Merrill notified financial regulators in both countries – the U.S. Securities and Exchange Commission and Britain’s Financial Services Authority.
Webb said Merrill has taken “aggressive measures’ to improve its financial control systems to prevent future incidents from happening.