SEC and FINRA Fine Merrill Lynch

Last month, when the Securities and Exchange Commission (SEC) fined Merrill Lynch $415 million, the firm was also fined $5 million by the Financial Industry Regulatory Authority (FINRA) for negligent disclosure failures, and an additional $10 million penalty by the SEC in order to settle the charges associated with the alleged misleading statements made to investors.

According to FINRA, Merrill Lynch allegedly sold five-year senior debt notes to customers and failed to disclose information regarding costs. They reportedly made the costs appear to be fixed and lower than they actually were. The notes amounted to roughly $168 million, and the firm allegedly promoted them as a hedge against a potential downturn in the market. Merrill Lynch was accused of failing to adequately disclose the execution factor in the related documents and material, instead emphasizing commission and annual fees, misrepresenting the notes to the investors. Merrill Lynch signed a Letter of Acceptance, Waiver, and Consent, accepting the monetary penalty and a censure.

The SEC’s additional penalty was to settle charges regarding Merrill Lynch allegedly offering materials with misleading statements for structured notes linked to a proprietary volatility index. The SEC also ordered Merrill Lynch to cease and desist from violating any regulations set forth by Section 17(a)(2) of the Securities Act.


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