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Written by 1:49 am FINRA SEC Sanctions, Securities Fraud Articles

Merrill Lynch Regulatory History Review 

Merrill Lynch Regulatory History Review featured by top securities fraud attorneys, The White Law Group

The White Law Group reviews the regulatory history of Merrill Lynch.  

The following is a review of publicly available information regarding Merrill Lynch and its securities sales practices and FINRA regulatory history. FINRA is the self-regulator that oversees brokers and brokerage firms. 

Merrill Lynch, Pierce, Fenner & Smith Inc. (CRD#: 7691/SEC#: 801-14235,8-7221),  a dual registered broker-dealer, is based in New York, NY. Merrill, a subsidiary of Bank of America, has been a FINRA member since 1937 and operates over 4,100 branches with more than 28,000 registered representatives.  

The firm has been the subject of investigations conducted by FINRA, New Hampshire Bureau of Securities Regulation, the SEC and other regulators.  These regulatory investigations involved the following alternative investment products: options, non- traded real estate investment trusts (REITs), limited partnerships and other direct investments, and variable annuities, among others. 

Merrill Lynch reportedly has 1,476 disclosures including 597 regulatory events, according to its CRD. The firm has also been named in 874 arbitration claims.  These claims involved various investment types and causes of action.  

Supervisory and Record Keeping Violations 

July, 1 2024: Merrill Lynch has reportedly been ordered by FINRA to reimburse approximately $1.5 million to customers due to supervisory failures that led to avoidable fees on over 2,000 accounts. Between January 2018 and June 2022, Merrill Lynch representatives recommended purchasing products in brokerage accounts instead of advisory accounts, where customers could have received fee waivers. This led to unnecessary expenses for over 1,300 clients, allegedly violating suitability rules and failing to act in clients’ best interests under SEC regulations.

May 9, 2024: The Financial Industry Regulatory Authority (FINRA) reportedly reached a settlement with Merrill Lynch addressing supervisory and recordkeeping deficiencies related to the execution of retail equity orders. From February 2017 to the present, Merrill failed to establish and maintain a supervisory system and written procedures that ensured the timely execution of retail equity orders in its electronic order systems. The firm only reviewed the timeliness of orders from when they were routed to a market center, neglecting the time taken by its systems to process and route the orders. This oversight violated FINRA Rules 3110 and 2010, which require members to observe high standards of commercial honor and maintain a system designed to ensure compliance with securities laws and regulations. 

Also, Merrill did not reasonably supervise the accuracy of order memoranda for retail brokerage equity orders received electronically, violating SEC and FINRA recordkeeping requirements, and FINRA Rules 3110, 4511, and 2010. As part of the settlement, Merrill has agreed to a censure, an $825,000 fine, and a requirement for senior management to certify within 90 days that the firm has remediated the issues and implemented a compliant supervisory system and procedures.  

Two Securities Regulators Fine Merrill Lynch $1.4 Million for Cold Calling Violations 

May 4, 2023: Merrill Lynch agreed to pay $1.4 million for inappropriate cold calling by its trainees between 2018 and 2020.  

Merrill Lynch, who self-reported the issue, reportedly signed separate consent orders with the Financial Industry Regulatory Authority (FINRA) and the New Hampshire Bureau of Securities Regulation. The firm agreed to pay each agency $700,000, for fines for the self-reported instances of cold calling.  

Merrill Lynch allegedly failed to establish and maintain a supervisory system reasonably designed to ensure that trainees did not place unsolicited telemarketing calls to individuals on the national do-not-call registry and the firm’s do-not-call list, according to FINRA’s findings in a Letter of Acceptance Waiver and Consent.  

This is not the first time that Merrill has been sanctioned by New Hampshire over telemarketing calls. In 2014 the firm also paid $400,000 for telemarketing calls to residents on the do-not-call registry.  

Failure to Supervise Broker Churning 

December 2020: Merrill Lynch reportedly agreed to pay a $26 million settlement to resolve allegations of broker churning by former advisor Charles Kenahan. The New Hampshire Bureau of Securities Regulation found that Merrill Lynch reportedly failed to supervise Kenahan, who purportedly engaged in churning stocks and initial public offerings, overcharging commissions, unauthorized trading, and inappropriate trading of inverse and leveraged products.  

As part of the settlement, Merrill Lynch paid a $1.75 million fine and $250,000 for supervisory failures, while the largest portion, $24.25 million, was paid to a high-net-worth client in New Hampshire, marking the largest monetary sanction in the state’s history. 

Charles Kenahan, who was reportedly registered with Merrill Lynch from 2007 until his discharge in 2019, was reportedly barred from operating in the securities business in New Hampshire.  

The settlement follows a previous $40 million settlement by Merrill Lynch in 2019 with another investor over similar allegations against Kenahan, including unauthorized and excessive trading and unsuitable investment recommendations between 2012 and 2017. 

Mutual Fund Overcharges 

June 1, 2022: FINRA reaches a settlement with Merrill Lynch regarding mutual fund sales. From January 2015 to January 2021, Merrill Lynch failed to establish and maintain a supervisory system reasonably designed to supervise sales of mutual fund Class C shares.  

In particular, the firm allegedly failed to correctly identify and implement applicable limits on customers’ Class C share purchases, which resulted in customers purchasing Class C shares when Class A shares were available, typically at a lower cost. As a result, customers paid approximately $13.4 million in excess fees and expenses. Therefore, Merrill Lynch violated FINRA Rules 3110 and 2010. FINRA credited Merrill Lynch for its extraordinary cooperation. Accordingly, this AWC includes an undertaking to pay restitution of approximately $15.2 million ($13.4 million, plus interest), and a censure, but no fine. 

June 4, 2020, Merrill Lynch agreed to a censure and paid approximately $7.2 million in restitution for its failure to have a supervisory system and written procedures reasonably designed to determine customers’ eligibility for reduced sales charges through mutual fund rights of reinstatement. Between April 2011 and April 2017, the firm failed to provide over 13,000 accounts with mutual fund sales, to charge waivers and fee rebates to which the customers were entitled through rights of reinstatement offered by mutual fund companies. 

June 6, 2014, Merrill Lynch reportedly agreed to a censure, an $8 million fine and paid approximately $24.2 million in restitution for supervision and suitability violations relating to the sale of mutual fund shares to certain retirement plans and charitable organizations. Between 2006 and 2011, the firm sold Class A shares with sales charges to over 30,000 accounts eligible to purchase the shares without an initial sales charge.  

Merrill Lynch– Broker Misconduct and Customer Complaints  

There have been several cases of registered representatives employed by Merrill Lynch who were allegedly involved in broker misconduct and fraudulent activities.  

William King Allegedly Recommended Unsuitable Investments 

The White Law Group filed a claim against Merrill Lynch last year involving former registered representative, Bill King of Vero Beach, Florida. 

In May 2023, King reportedly resigned from Merrill Lynch after 37 years due to numerous customer complaints. King voluntarily resigned on April 21, 2023, following allegations of unsuitable and unauthorized trading in certain clients’ accounts.  

According to his FINRA BrokerCheck profile, King has 28 customer complaints, including allegations of unauthorized options trades in 2022, misrepresentation of an equity-indexed annuity, and other unauthorized and unsuitable trading activities. Options trading, which involves a high level of risk, can lead to significant financial losses if conducted without authorization. 

Merrill Lynch Broker Suspended for Unsuitable Short-Term Trading 

July 2023: Former Merrill Lynch advisor Robert Gerstein has been fined and suspended by FINRA for allegations of unsuitable short-term trading of mutual funds and other complex investment products. Without admitting or denying the allegations, Gerstein reportedly agreed to a six-month suspension, a $5,000 fine, and restitution of $129,496 in commissions plus interest.  

March 2022: Forrest Jones, a former broker with Merrill Lynch, was reportedly barred from the securities industry by FINRA as of February 28, 2022, after failing to request termination of his suspension within three months. The suspension stemmed from a complaint filed by the SEC in May 2021, alleging that Jones and others raised at least $3.7 million in a fraudulent investment scheme involving advisory clients and retail investors. Jones and his co-defendants reportedly enticed mostly unsophisticated clients with promises of high returns from secure investments but instead allegedly recommended and sold extremely risky investments linked to fraudulent companies owned or controlled by the other defendants. 

March 2021: Former Merrill Lynch broker Marcus Boggs reportedly pleaded guilty to wire fraud on March 21, 2021, admitting to stealing over $3 million from clients to fund personal expenses such as luxury hotel stays, expensive meals, and various living expenses. Boggs, who worked for Merrill Lynch for 12 years, allegedly defrauded at least eight clients between 2008 and 2018, using the funds for international travel, multiple apartment rents, and his personal residence’s mortgage. He faced a maximum sentence of 20 years. 

Boggs was reportedly barred by FINRA in January 2019 for failing to respond to an investigation and was indefinitely barred in April 2019. The SEC also barred him in February 2020. These actions followed three customer complaints alleging unauthorized transfers to an American Express account, resulting in settlements totaling approximately $5.6 million. Boggs was reportedly registered with Merrill Lynch in Chicago until his dismissal in December 2018 for unauthorized withdrawals from client accounts. 

Failure to Supervise – Merrill Lynch  

The FINRA supervision rule (FINRA Rule 3110) helps to ensure that firms have effective supervisory systems in place to protect investors.

FINRA Rule 3110 is designed to protect investors by requiring firms to establish and maintain a supervisory system designed to achieve compliance with applicable securities laws, regulations, and FINRA rules. This helps to ensure that the firm and its associated persons conduct business in an ethical and compliant manner, reducing the risk of harm to investors.     

The rule requires firms to designate one or more qualified individuals to be responsible for supervising the activities of the firm and its associated persons. These individuals are responsible for ensuring that the firm’s supervisory procedures are effective in detecting and preventing violations of securities laws and regulations.     

Firms must also review and monitor customer account activity to detect and prevent potential violations and conduct periodic inspections of the firm’s offices and other locations where business is conducted.       

National Securities Attorneys – the White Law Group          

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims in all 50 states against their financial professional or brokerage firm. Since the firm launched in 2010, it has handled over 700 FINRA arbitration cases.             

Our firm represents investors in all types of securities related claims, including claims involving stock fraud, broker misrepresentation, churning, unsuitable investments, selling away, and unauthorized trading, among many others.              

With over 30 years of securities law experience, the White Law Group has the expertise to help investors defrauded in securities, investment and financial business transactions attempt to recover their investment losses.              

If you have concerns regarding investments with Merrill Lynch and would like to speak with a securities attorney, please call The White Law Group at 888-637-5510.         

       

         

         

   

  

  

 

 

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