The Securities and Exchange Commission is preparing a civil enforcement case against Merrill Lynch over an investment that fell as much as 95% in value and was marketed in a way that one of the firm’s financial advisers called “borderline crooked,” people close to the probe said.

The expected case against the brokerage arm of Bank of America underscores some of the risks of so-called structured notes, securities custom-built by banks out of options and other derivatives and often sold to retail investors.