FINRA Charges Merrill Lynch $7 Million

The Financial Industry Regulatory Authority said on November 30 it fined Merrill Lynch $7 million for inadequate supervision of client brokerage accounts that used leverage to buy Puerto Rican municipal bonds and other securities.

Between 2010 and mid-2013, FINRA found Merrill Lynch’s systems did not adequately enforce policies that govern how clients can use securities-backed loans. Loan management accounts or lines of credit, allow clients to borrow money using the securities in their portfolios as collateral.

On thousands of occasions, FINRA said, Merrill brokerage accounts collectively bought hundreds of millions of dollars of securities within 14 days of receiving incoming transfers from the credit lines.

According to FINRA, Merrill Lynch’s systems failed to ensure the suitability of Puerto Rican municipal bonds and closed-end funds for customers who were highly leveraged through these loans or whose investments were mostly concentrated in Puerto Rican securities.

FINRA said that 25 customers with modest net worth had three-quarters of their portfolios invested in Puerto Rican securities and lost a total of $1.2 million.

The fine includes $780,000 in restitution for those clients. Merrill Lynch neither admitted nor denied the charges.

For more information on The White Law Group’s investigation of Puerto Rican Municipal Bonds see Troubling News for UBS Puerto Rico Fund Investors.

The foregoing information, which is all publicly available, is being provided by The White Law Group.   The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Franklin, Tennessee.

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