Articles Posted in Merrill Lynch

The Financial Industry Regulatory Authority (“FINRA”)  has fined Merrill Lynch, Pierce, Fenner & Smith Inc (“Merrill Lynch”) $6.25 million and imposed a restitution penalty of $780,000 over Merrill Lynch’s inadequate supervision of its customers that employed leverage in brokerage accounts, as well as its failure to supervise the way that these customers were able use the proceeds from their loan managed accounts (“LMAs”). LMAs are credit lines that let customers use the securities in their brokerage accounts as collateral in order to borrow funds from a bank affiliate.  However, these LMAs are not supposed to be used to purchase additional securities.

The $780,000 will go to customers that invested in Puerto Rico municipal bonds and Puerto Rico closed-end bond funds. By settling Merrill Lynch is not admitting or denying FINRA’s findings.

According to FINRA, Merrill Lynch did not have these adequate procedures and supervisory systems at issue in place from 1/2010 through 11/2014. FINRA found that even though Merrill Lynch’s policy and non-purpose LMA agreements barred customers from using LMA proceeds to buy different kinds of securities, there were thousands of times during the relevant period that, within two weeks of getting LMA proceeds, Merrill Lynch brokerage accounts collectively purchased hundreds of millions of dollars of securities. Merrill Lynch also set up over 121,000 LMAs, with Bank of America (“BAC”) extending over $85 Billion in aggregate credit. FINRA said that all of this was able to happen because the firm’s supervisory procedures and systems were inadequate.

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Ex-Merrill Lynch Adviser Accused of Misleading Clients with IRAs
Landon L. Williams, and ex-Merrill Lynch adviser who is no longer registered with the Financial Industry Regulatory Authority, is accused of misleading five of the firm’s clients by giving them inaccurate information when issuing recommendations for investments. All of the clients had individual retirement accounts. At the time, Williams served as a Merrill Lynch Edge Advisory Center adviser for a year until August 2014.

Merrill Edge customers have less than $250K in accounts. Instead of working with one broker, they work with a team of advisers.

In its complaint, FINRA note a couple of examples, including when Williams allegedly told one customer that the yearly operation cost of a fund was 1.113% when, in fact, it was 1.28%. He purportedly informed one client that she would be able to make up her front-end sales charges in three years even though his notes related to that fund said that she would make them up in seven years.

FINRA is seeking monetary sanctions.

Life Insurance Companies Settle with U.S. States Over Unclaimed Death Benefits
Securian Financial Group Inc., Hartford Financial Services Group, Standard Insurance Co., and Great American Insurance Group have reached a $3.4M settlement with the state insurance departments of North Dakota, Florida, California, Pennsylvania, and New Hampshire. The deal is related to the payment of unclaimed death benefits.

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Merrill Lynch will pay $415M to resolve civil charges accusing the firm of misusing customer funds and not safeguarding customer securities from creditor claims. According to the Securities and Exchange Commission, the firm violated the regulator’s Customer Protection Rule by using customer funds inappropriately instead of depositing them in a reserve account.

Instead, said the SEC, Merrill Lynch took part in complex options trades that artificially lowered how much in customer funds needed to be in the reserve account. This liberated billions of dollars a week from ’09 to ’12. The firm used the funds for its own trades. If Merrill had failed with these trades there would have been a substantial shortfall in the reserve account.

Merrill Lynch, which is owned by Bank of America (BAC), has admitted wrongdoing as part of the settlement.

The SEC said that the firm violated the Customer Protection Rule when it didn’t abide by the requirement that customer securities that had been fully paid for be kept in lien-free accounts and protected from third parties claims in the event that Merrill Lynch were to collapse. Such a failure would have exposed customers to great risk and there would have been uncertainty as to whether they’d be able to get their securities back.
Also, contends the Commission, from ’09 to ’15, Merrill held up to $58B of customer securities a day in a clearing account that was subject to a general lien to be handled by its clearing bank.

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New Hampshire Says Merrill Lynch Must Pay $400,000 For Not Complying with Telemarketing Rules

Bank of America (BAC) Merrill Lynch has consented to pay $400,000 to resolve claims made by the New Hampshire Bureau of Securities Regulation accusing the firm of improperly soliciting business when it called people who were on do-not-call lists and were not clients. As part of the deal, Merrill Lynch will improve its telemarketing procedures and policies. A spokesperson for the brokerage firm says it has already enhanced internal controls to avoid making inappropriate calls moving forward.

According to the regulator, not only did the broker-dealer fail to fully comprehend how to comply with the state’s rules for telemarketing but also the firm did not reasonably supervise its agents’ telemarketing activities in New Hampshire.

FINRA is ordering Bank of America’s (BAC) Merrill Lynch to pay a $1.9M fine for violating fair price guidelines over seven hundred times during a two-year period. The financial firm also must pay restitution of over $540K to customers that were affected.

According to the self-regulatory organization, Merrill’s credit trading desk purchased MLC notes from retail customers at up to 61.5% under the market price. General Motors had issued the notes prior to its bankruptcy. MLC Notes stands for Motors Liquidation Company Senior Notes.

Out of 716 transactions, 510 of them involved notes bought at markdowns that were greater than 10%. The desk would then sell the notes to brokers at market cost.

According to the Financial Industry Regulatory Authority (FINRA), Ameriprise Financial (AMP) broker Lorene Fairbanks, formerly with Merrill Lynch. Pierce, Fenner & Smith Incorporated, was recently sanctioned over allegations that she effected over 57 discretionary transactions for several customers without getting the required written authorization from the clients or the approval of the firm. Fairbanks also allegedly mismarked over 50 order tickets, noting them as “unsolicited” when they were “solicited” orders. Brokers are not allowed to exercise discretionary authority in a client account without written authorization.

The Ohio broker was registered with Merrill Lynch from 8/06 to 3/12. The firm fired Fairbanks in February 2012 for purportedly taking discretion in client accounts and mismarking customer orders. She has been associated with Ameriprise since June 2012. There also have reportedly been other customer complaints accusing Fairbanks of excessive trading and unsuitable trading.

Also sanctioned by FINRA for allegations of unauthorized trading is George Zaki, another ex-Merrill Lynch broker. The self-regulatory organization contends that Zaki implemented or executed about 3,600 trades in some 80 accounts without written customer authorization between 6/10 and 8/12.

Ex-Wells Fargo Advisors Broker Must Pay Back Firm $1.2M

A Financial Industry Regulatory Authority panel says that Philip DuAmarel, a former Wells Fargo Advisor (WFC), must pay his former employer back almost $1.3 million. The panel denied his claim that the firm oversold its corporate stock plan services during his recruitment. They told him to pay back the unvested part of an upfront loan he received when he became part of Wells Fargo.

DuAmarel worked for the firm for less than three years when he left in 2010 for Bank of America (BAC) Merrill Lynch. He contended that when the firm was recruiting him he was misled about Wells Fargo’s ability to serve corporate stock plans and also regarding how much he could make for helping executives with their company’s stock trades. DuMarel’s attorney said that the broker left when it became obvious he wouldn’t be able to work with clients they way he did when he was at Citigroup (C) Global Market’s Smith Barney.

FINRA Fines Merrill Lynch, Goldman, and Barclays Capital $1M Each Over Blue Sheet Data

The Financial Industry Regulatory Authority has issued a censure that fines Goldman Sachs & Co. (GS), Merrill Lynch, Pierce Fenner & Smith Inc., and Barclays Capital Inc. $1 million each. The firms are accused of not submitting accurate and complete data about trades conducted by them and their customers to the SRO and other regulators. This information is known as “blue sheet” data. Firms are legally required to give regulators this information upon request.

Blue sheets give regulators specific information about trades, including the name of a security, the price, the day it was traded, who was involved, and the size of transaction. This information is helpful to identify anomalies in trading and look into possible market manipulations.

The SEC is investigating whether Merrill Lynch (MER) and Charles Schwab Corp. (SCHW) did not recognize signs that that some of their customers might have been laundering money because they didn’t do enough to find out who these clients were. Some of the purported money laundering has been linked to drug cartels in Mexico.

Bank of America Corp. (BAC) now owns Merrill Lynch. The SEC says that the two broker-dealers accepted as clients individuals who gave out fake addresses and shell companies. For example, one Charles Schwab client, a Texas rancher, had been moving funds to a holding company that was actually a shell company. Also, some account holders with Schwab were linked to drug money in Mexico. Certain accounts contained millions of dollars.

Broker-dealers must set up, document, and keep up steps so that it can identify its customers and confirm their identifies. Failure to do any of these can result in stiff penalties, such as the $1 million E*Trade Financial Corp. was ordered to pay in 2008. The firm did not check to confirm the identities of over 65,000 secondary account holders. Because of this failure false reporting occurred.

Even as she serves her 33-month sentence for securities fraud, Jane O’Brien, a former Merrill Lynch (MER) broker, has now been indicted for her alleged involvement in a Ponzi scam that purportedly ran for nearly two decades. The U.S. Attorney’s Office for the District of Massachusetts says that O’Brien is facing criminal charges for mail fraud, investment adviser fraud, and wire fraud involving the misappropriation of $1.3 million in client monies.

Per the indictment, between 1995 and 2013 and while she worked at Citigroup (C)’s Smith Barney and then later with Merrill, O’Brien persuaded a number of clients to withdraw money from brokerage accounts and their banks. She got their permission to invest the funds in private placements. However, instead, the 61-year-old allegedly used the money to repay other investors and cover her personal expenses.

O’Brien is also accused of making misrepresentations to clients, providing them with materially false statements, “making lulling payments,” and offering false assurances that their money was secure. She even in one instance, allegedly, got a client to invest in “Crooked Arrows,” a Hollywood film, in return for a promised 25% return, which did not happen.

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