The Financial Industry Regulatory Authority says that it is fining Merrill Lynch, Pierce, Fenner & Smith, Inc. $2.8M in the wake of certain alleged supervisory failures that the SRO says led to the financial firm billing clients unwarranted fees. The financial firm paid back the $32M in remediation to affected clients, in addition to interest.
According to FINRA, from 4/03 to 12/11, Merrill Lynch lacked a satisfactory supervisory system that could ensure that certain investment advisory program clients were billed per the terms of their disclosure documents and contract. As a result, close to 95,000 client account fees were charged.
Also, due to programming mistakes, Merrill Lynch allegedly did not give certain clients timely trade confirmations. These errors caused them to not get confirmations for over 10.6 million trades in more than 230,000 customer accounts from 7/06 to 11/10. Additionally, FINRA contends that Merrill Lynch failed to properly identify when it played the role of principal or agent on account statements and trade confirmations involving at least 7.5 million mutual fund buy transactions. By settling, Merrill Lynch is not denying nor admitting to the charges. It is, however, agreeing to the entry of FINRA’s findings.
Also settling with FINRA are Brookstone Securities, firm CEO/owner Antony Turbeville, and firm broker Christopher Kline. They are accused of fraudulently selling collateralized mortgage obligations to unsophisticated retirees, who wanted to put their money in investments that were safer than equity investments. The financial firm must pay back affected clients $1.6M ($1,179,500 of this was imposed jointly and severally with Kline and the remaining balance was imposed jointly and severally with Turbeville). Brookstone also is responsible for paying a $1M fine over the alleged elder financial fraud.
According to a FINRA hearing panel, from 7/05 through 6/07, Turbeville and Kline purposely issued allegedly fraudulent misrepresentations and omissions to these elderly seniors about the risks involved in CMO investments. The two men are exploiting these clients “greatest fears,” including the worry that they would run out of money when they were older.
The panel found that even when interest rates were rising in 2005 and the two men could clearly see the negative impact this was having on CMOs, they still failed to explain this to clients and instead caused them to think that their investments were bonds that were guaranteed by the government, kept capital safe, and made returns of 10-15%. While clients lost over $1.6M,Brookstone earned $492,500 in commissions from the same CMO bond transactions.
In another securities case, this one a lawsuit that was settled of court, William B. Smith has lost his right to use the certified financial planner designation after he allegedly defrauded a client of $1.2M and took $25K from another client. This revocation, imposed by the CFP Board, is permanent.
Smith’s client, Catharine C. Lund of Maine, had accused him of committing financial fraud after working on a1031 exchange for her following the sale of two of her properties. She contends that Smith should not have advised her to invest $1.2M into the Grafton building where his office is situated.
Our securities lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP represent individual and institutional investors.
Finra Fines Merrill Lynch $2.8 Million for Overcharging Customers, The Wall Street Journal, June 21, 2012
CFP Board Disciplines Planner for Alleged Fraudulent Use of $1.2M, FInancial Planning, June 21, 2012
More Blog Posts:
Securities Law Roundup: Ex-Morgan Stanley’s SEC Settlement Over Alleged FCPA Violations Gets Court Approval, Corruption Probe Into Wal-Mart’s Mexico Activities Continue, and Sentry Global Securities Principal Gets 20-Years for Pump-and-Dump Scam, Stockbroker Fraud Blog, May 24, 2012
Securities Law Roundup: Ex-Sentinel Management Group Execs Indicted Over Alleged $500M Fraud, Egan-Jones Rating Wants Court to Hear Bias Claim Against SEC, and Oppenheimer Funds Pays $35M Over Alleged Mutual Fund Misstatements, Stockbroker Fraud Blog, June 13, 2012
Institutional Investor Securities Roundup: SEC Sues Investment Adviser Over $60M Ponzi Scam, Michigan Investment Club Manager Gets Prison Term for Defrauding Over 900 Investors, & IOSCO Seeks Comments on Report About Credit Raters’ Conflicts & Controls, Institutional Investor Securities Blog, June 7, 2012
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients of content from this site, clients or otherwise, should act or refrain from acting on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient’s state. The content of this Website contains general information and may not reflect current legal developments, verdicts or settlements. The Firm expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this Website. Read More.