Merrill Lynch and Harvest Volatility Management face charges from the SEC for exceeding client investment limits.

• On Wednesday, Harvest Volatility Management and Merrill Lynch were charged by the Securities and Exchange Commission for exceeding clients' predesignated investment limits over a two-year period.
• The two companies reached separate settlements and will collectively pay $9.3 million to resolve the allegations.
• The SEC discovered that Harvest put investors at higher financial risk, and Merrill linked clients to Harvest despite being aware that accounts were surpassing designated limits.

On Wednesday, Harvest Volatility Management and Merrill Lynch were charged by the Securities and Exchange Commission for exceeding clients' predesignated investment limits over a two-year period.

Merrill, Harvest, and have agreed to pay a combined $9.3 million in penalties to settle their respective claims.

The Collateral Yield Enhancement Strategy, which Harvest advised and managed, traded options in a volatility index to achieve incremental returns. Since 2016, Harvest has allowed numerous accounts to exceed the exposure levels designated by investors when they signed up for the strategy, with many accounts passing the limit by 50% or more, as per SEC orders.

According to the SEC, Merrill Lynch knowingly linked its clients to Harvest Funds while being aware that their accounts were surpassing the predetermined exposure limits under Harvest's management. Additionally, Merrill received a portion of Harvest's trading commissions and management and incentive fees.

The SEC found that both Merrill and Harvest received larger management fees while investors were exposed to greater financial risks, despite neglecting policies and procedures that could have alerted them to exposure exceeding designated limits.

"Two investment advisers, Merrill and Harvest, allegedly sold a complex options trading strategy to their clients but failed to follow basic client instructions and appropriate policies and procedures, according to Mark Cave, associate director of the SEC's enforcement division. Today's action holds them accountable for their failure to execute basic duties to their clients, resulting in their clients' financial exposure growing beyond predetermined limits."

Bank of America officials declined to comment on the charges or settlement when contacted by CNBC.