Merrill Lynch Fined $1.9 Million, Ordered to Pay $540,000 in Restitution for GM Fair Pricing and Supervisory Violations

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FINRA fined Merrill Lynch, Pierce, Fenner & Smith Incorporated $1.9 million and ordered the firm to pay over $540,000 in restitution plus interest for fair pricing and supervisory violations related to over 700 retail customer securities transactions that occurred between July 1, 2009 through June 30, 2011 and involved senior notes issued by the Motors Liquidation Company (MLC) and listed on the New York Stock Exchange.

FINRA Case #20100226911-01

According to the findings, Merrill Lynch's staff purchased MLC notes from customers at an unfair price 716 times and that the firm's supervisory system for pricing retail customer transactions during the 2009-2011 period was deficient.

In regards to the fair pricing violations, investigators found that General Motors filed for bankruptcy and changed its name to the aforementioned Motors Liquidation Company in June of 2009, causing its MLC notes to become "highly distressed," and preceding the 716 transactions in which retail customers sold their MLC notes to Merrill Lynch.

FINRA determined that fair pricing violations occurred when one trader on the credit desk collected MLC notes at below-market prices and then, when enough notes had been accumulated, sold the wholesale notes to other broker-dealers at the prevailing market price, but did not extend this prevailing market price to Merrill Lynch's retail customers.

As a result, Merrill Lynch effected the 716 corporate bond purchases at a price that was not fair to its customers.

In regards to supervision violations, FINRA referred to Merrill Lynch's deficient written supervisory procedures (WSP)s, which allegedly did not identify the person responsible for fair pricing and best execution review supervision, did not specify supervisory steps that person should take, nor did the WSPs specify how often the steps should be taken or how they should be documented.

Accordingly, FINRA's $1.9m fine and censure of Merrill Lynch constituted a $1.4 million fine for fair pricing violations and $500,000 for supervision violations. The $541,629.19 in restitution represents the net effect, plus associated expenses, that unfair pricing in purchasing had on the 716 bond purchases.

If you have invested with Merrill Lynch or with any broker, financial adviser or firm whose unfair pricing schemes have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.