Bank of America Merrill Lynch to Settle UIT Sales-Related FINRA Charges for $2.5 Million

Bank of America Merrill Lynch has agreed to settle for $2.5 million Financial Industry Regulatory Authority allegations that it did not provide “sales charge discounts” to clients with eligible unit investment trusts purchases. By agreeing to settle, the broker-dealer is not admitting to or denying the charges. Of the $2.5 million, $2 million is restitution and $500,000 is a fine.

A unit investment trust is an investment company that holds a fixed portfolio of securities while offering redeemable units from that portfolio. The units have a fixed date for termination. UIT sponsors usually offer sales charge discounts called “rollover and exchange discounts”-usually offered to investors that use redemption or termination proceeds from one unit to buy another-and “breakpoint discounts”-based on the purchase’s dollar amount-to investors.

Since March 2004, FINRA has made it clear that investment firms must have procedures in place to make sure that clients get their UIT discounts. The SRO contends, however, that until May 2008, Merrill Lynch did not provide brokers or their supervisors with such guidance and neglected to tell clients when they were eligible for a UIT discount. This went on between October 2006 and June 2008 and many clients were overcharged for their UIT purchases.

FINRA also accused Merrill Lynch of distributing client presentation that contained sales information about UITs that were “inaccurate and misleading,” causing clients to believe that they were only eligible for a UIT discount if UIT proceeds were used to buy a new UIT from the same sponsor.

Related Web Resources:
BofA Merrill Lynch to Pay $2.5 Million in FINRA Matter, ABC News, August 18, 2010
Merrill Lynch to pay $2.5M in sales charge case, Business Week, August 18, 2010

Other Merrill Lynch Stories on Our Web Site:
Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million, StockbrokerFraudBlog, February 15, 2010
Merrill Lynch Must Pay $26 million to States to Resolve Charges of Failure to License Associates, StockbrokerFraudBlog, December 22, 2009
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