Merrill Agrees to Pay $39 Million to Settle Merrill Edge Retirement Cash-Sweep Class Action

The proposed deal, which still needs a federal judge's approval, would end a 2019 suit claiming Merrill Edge retirement savers earned a fraction of a percent on swept cash while other brokerages paid about 2%.

Merrill Lynch has agreed to pay $39 million to settle a class action alleging it shortchanged Merrill Edge retirement customers on interest earned by their uninvested cash, according to settlement papers filed late Wednesday, Sept. 30, in federal court in Manhattan.

The proposed deal still requires sign-off from U.S. District Judge Valerie Caproni of the Southern District of New York, who is presiding over the case, Valelly v. Merrill Lynch, Pierce, Fenner & Smith Inc. (No. 1:19-cv-07998). The agreement heads off a trial that had been scheduled to start Oct. 13, according to Bloomberg Law (https://news.bloomberglaw.com/securities-law/merrill-lynch-settles-cash-sweep-class-action-for-39-million). Caproni cancelled that trial date in a Sept. 8 order, according to the claims-tracking site Settlement Insight, which quoted the order.

The class is made up of customers who held Merrill Edge retirement accounts during a window that AdvisorHub (https://www.advisorhub.com/merrill-agrees-to-39m-settlement-in-cash-sweep-suit/) described as December 2016 to March 2020, and that Reuters and InvestmentNews pinned to Dec. 15, 2016, through March 15, 2020. Lead plaintiff Sarah Valelly, who sued in 2019, alleged that cash sitting in those accounts was automatically moved into deposit accounts that yielded between 0.05% and 0.14% a year, while other brokerages were paying their customers roughly 2%. The core of the claim was contractual: Merrill's client agreement said swept balances would earn a "reasonable rate" of interest, and the plaintiffs argued the near-zero yields fell short of that promise.

Settlement Insight, which reviewed the court-approved class notice, said the class was certified on Feb. 26, 2026, and covers traditional, Roth, rollover, inherited, SEP and SIMPLE IRAs whose cash was swept into Merrill-affiliated bank deposits through the firm's Retirement Asset Savings Program. Non-retirement accounts are not included. Wolf Popper LLP serves as class counsel, and the settlement motion asks the court to appoint JND Legal Administration to run the process, according to the site. It added that the stipulation of settlement was not freely available on the public docket as of Oct. 2, so the claims procedure, the fee request and the formula for dividing the money have not been disclosed.

Merrill denied wrongdoing, Reuters and InvestmentNews reported. A Bank of America spokesperson declined to comment, according to AdvisorHub and Reuters, while InvestmentNews (https://www.investmentnews.com/regulation-legal-compliance/merrill-to-pay-39-million-in-cash-sweep-settlement/268453) said a Merrill spokesperson did not return its call. Adam Blander, a lawyer for the settling customers, told Reuters the accord was "very beneficial" for the class.

Reports differ on how the $39 million stacks up against the plaintiffs' losses. AdvisorHub, citing the filings, said the payment equals almost 57% of the $68.6 million in damages the plaintiffs had calculated. Bloomberg Law reported that Valelly, in her motion for preliminary approval, put the figure at 60% of the damages she would have presented at trial, and at about 19% under a different calculation.

The deal does not close out Merrill's exposure on sweep rates. On the same day the settlement was filed, U.S. District Judge Margaret Garnett, also in Manhattan, ruled that Merrill must face most of a separate proposed class action over sweep yields that reaches both retirement and non-retirement accounts, Reuters reported. Under Garnett's ruling, those customers can try to prove that Merrill breached its contractual duty to pay a "reasonable rate" tied to economic and business conditions. Merrill had pressed her to cut the case down substantially, arguing in part that it removed the "reasonable rate" language from its customer agreements in 2023 and 2024, according to Reuters. Settlement Insight identified that case as In re Merrill Lynch Cash Sweep Programs (No. 1:23-cv-10768).

The class settlement also lands on top of a $25 million civil penalty Merrill agreed to pay the Securities and Exchange Commission in January 2025 over cash in its advisory accounts. InvestmentNews put the combined cost of the two matters at $64 million. In its Jan. 17, 2025 order, the SEC found that from January 2022 through April 2024 the Merrill Lynch Bank Deposit Program was the only sweep choice for most of the firm's advisory clients, and that as market rates climbed, the yields those clients received were often well below what other sweep options would have paid. Two Wells Fargo advisory broker-dealers settled in the same announcement, with Wells Fargo Clearing Services paying $28 million and Wells Fargo Advisors Financial Network paying $7 million, for a $60 million total across the three firms. None of the firms admitted or denied the SEC's findings. AdvisorHub pointed out that the Valelly suit predates and is separate from those regulatory cases, which dealt with advisory accounts.

Washington's approach shifted after the change in administration. By May 2025, Morgan Stanley and LPL Financial had disclosed that the SEC closed its sweep investigations of those firms without bringing enforcement actions, AdvisorHub reported. InvestmentNews noted that the agency had been examining sweep options since at least 2022 and cited its $187 million settlement with Charles Schwab that year.

Private litigation has not slowed in the same way. Reuters said sweep suits multiplied in 2023 and 2024 as interest rates rose and have produced mixed outcomes for plaintiffs. In February, a Manhattan federal judge allowed part of one such case against JPMorgan Chase to move forward, and on Sept. 18 another judge in the same court granted final approval to a $70 million settlement with Oppenheimer & Co., according to Reuters. AdvisorHub, citing legal consulting firm Rain Intelligence, counted about 20 sweep cases pending in federal courts, including newer complaints against Janney Montgomery Scott and Betterment.

As of Oct. 2, Caproni had not scheduled a hearing on preliminary approval of the Merrill settlement, according to Settlement Insight.