FINRA fined Merrill Lynch $6.25 million and ordered the firm to pay an additional $780,000—totaling over $7 million in penalties—for inadequate supervision of its customer's use of leverage in their Merrill Lynch brokerage accounts.
In consenting to the findings without admitting or denying them, Merrill Lynch accepted the $7 million punishment for what FINRA says was a failure to establish and maintain adequate supervisory systems from 2010 through 2014, inadequate written procedures regarding Loan Management Accounts (LMAs), and for failing to establish and maintain adequate supervisory systems and written procedures related to transactions in certain Puerto Rico securities, including municipal bonds and closed-end funds that featured high concentration and leverage through either LMAs or margin.
The report states that on thousands of occasions, Merrill Lynch brokerage accounts collectively bought hundreds of millions of dollars of securities within 14 days after receiving incoming transfers of LMA proceeds, which the document says was a FINRA/NASD rules violation.
Additionally, FINRA wrote that 25 customers' holdings were highly concentrated (75% or more of their account assets) in the Puerto Rico municipal bonds and closed-end fund securities, and highly leveraged through either LMAs or margin during the relevant period.
The findings state that these customers suffered aggregate losses of nearly $1.2 million as a result of liquidating those securities to meet margin calls, which is where the $779,999 restitution order comes into play.
If you have invested with Merrill Lynch, Pierce, Fenner & Smith Inc. or with any firm, broker, or financial adviser whose inadequate supervisory systems, overconcentration, or excessive use of securities-backed leverage has proven harmful to your investments or interests—for instance, as a result of financial loss due to liquidation to meet margin calls—please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.
News Release: FINRA Sanctions Merrill Lynch $7 Million for Inadequate Supervision of Securities-Backed Leverage in Customer Brokerage Accounts (FINRA)