Securities Cases: Merrill Lynch Ordered to Pay $2.8M for Supervisory And Other Violations, Ernst & Young Agrees to Pay $11.8M for Failed Audits, and Ex-Morgan Stanley Client Administrator is Suspended Over Fraudulent Wire Transfer

Financial Industry Regulatory Authority Fines Merrill Lynch $2.8M

FINRA has fined Merrill Lynch, Pierce, Fenner and Smith Inc. $2.8 million. By settling, the firm is not denying or admitting to the self-regulatory organization’s charges.

FINRA said because of system errors, Merrill Lynch inaccurately reported millions of trades. The regulator said that Merrill Lynch’s supervisory system as it relates to specific matters related to documenting, reporting, and records was not designed in a reasonable manner.

Ernst & Young Settles Audit Failure Charges By Agreeing to Pay Over $11.8M

Ernst & Young LLP has agreed to resolve U.S. Securities and Exchange Commission charges accusing it of audit failures. The monetary settlement, along with the $140M penalty that audit client Weatherford International agreed to pay separately, will go back to investors who were hurt in the accounting fraud.

According to the SEC’s order, even though Weatherford’s audits were considered “high risk,” the Ernst & Young audit team failed a number of times over more than five years to identify that the oil services company was committing fraud. The SEC said that rather than conducting the mandated audit procedures to examine Weatherford’s accounting, the audit team depended on the oil services company’s “unsubstantiated explanations.”

Weatherford is accused of employing deceptive income tax accounting in order to make its earnings appear higher.

Also facing SEC charges are Ernst & Young partner Craig Fronckiewicz and ex-audit engagement team member Sarah Adams. Both have consented to suspensions. They are accused of ignoring red flags during reviews and audits.

Of the $11.8M that Ernst & Young has agreed to pay, $9M is disgorgement, over $1.8M is prejudgment interest, and $1M is a penalty.

Former Morgan Stanley Transfers Client Funds On the Instructions of Imposter

FINRA has suspended Debra J. Ferrara, an ex-Morgan Stanley (MS) client service administrator, from the securities industry for 60 days. The self-regulatory organization said that Ferrara transferred more than $108K from a client’s account to the bank accounts of another party and falsified records. Morgan Stanley fired her in 12/2011 for the falsification of data in the firm’s books.

The month before she was let go, Ferrara, who provided administrative support, received an email that appeared to have been forwarded by the adviser with whom she worked. The email directed her to process a wire transfer from the account of a client to a third party bank account. She did not know that an imposter, and not the financial representative, had sent the email.

Morgan Stanley’s processes and procedures mandated that Ferrara contact the authorized person first, confirm that veracity of the transfer, and document the incident on internal records. Instead, said FINRA, she falsely documented that the transfer was verbally confirmed with the authorized person and gave “fictitious reasons” for the transfer.

Ferrara will pay a $5K fine. By settling, Ferrara is not denying or admitting to the regulator’s finding.

The SSEK Partners Group is an institutional investor fraud law firm. 

FINRA Fines Merrill Lynch $2.8M for Systemic Reporting, Books, and Related Supervisory Violations, FINRA, October 18, 201 6

Finra Suspends Ex-Morgan Stanley Client Administrator for fraudulent wire transfer, InvestmentNews, October 17, 2016