Merrill Lynch, Pierce, Fenner & Smith Inc. has been fined $6.25 million,
with an additional $780,000 to be paid in restitution, after the Financial
Industry Regulatory Authority (FINRA) found that the firm inadequately
supervised its customers’ use of leverage in their brokerage accounts.
Merrill neither admitted nor denied the charges announced on Wednesday,
November 30, but consented to the entry of these findings in settling
During its investigation, FINRA discovered that Merrill failed to adequately
supervise their customer’s use of proceeds from loan management
accounts (LMAs) between January of 2010 and November of 2014. These accounts
are lines of credit which allow Merrill customers to borrow money and
use the securities in their brokerage accounts as collateral for the loans.
FINRA discovered that both the Merrill Lynch policy and the terms of the
loan agreements prohibited customers from using LMA proceeds to buy certain
types of securities, but the firm’s supervisory system and procedures
were not reasonably designed to enforce the policy. During that nearly
five year period, FINRA found that Merrill brokerage accounts bought hundreds
of millions of dollars’ worth of securities within two weeks of
receiving LMA proceeds on thousands of occasions. As a result of the FINRA
case, Merrill Lynch said that they have strengthened their controls and
procedures related to the LMAs.
In addition, FINRA also found that between January of 2010 and July of
2013, the firm lacked adequate procedures and supervisory systems to make
sure that transactions involving certain Puerto Rican securities, including
closed-end funds and municipal bonds, were suitable.
Meyer Wilson has helped clients recover hundreds of millions of dollars
in settlements and verdicts since we first opened our doors nearly 20
years ago, and are dedicated to providing victims of investment misconduct
the legal representation they require in their time of need.
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