Merrill Lynch Pierce Fenner Smith Inc., a securities broker dealer headquartered in New York, New York, has been censured and fined $1,200,000.00 by Financial Industry Regulatory Authority (FINRA), founded on findings that it failed to comply with FINRA during two misconduct investigations. Letter of Acceptance, Waiver, and Consent No. 2018058015702 (December 20, 2021).
According to the AWC, FINRA began investigating Merrill Lynch after learning of a customer initiated investment related arbitration claim concerning a Merrill Lynch stockbroker and after reviewing a Form U5 indicating that another Merrill Lynch stockbroker had been involved in a customer complaint.
FINRA states that three customers collectively filed investment related arbitration claims, which alleged that a Merrill Lynch stockbroker engaged in unsuitable recommendations, excessive trading, and unauthorized trading. Merrill Lynch received a FINRA request in May of 2018 relating to these customer disputes. FINRA asked for Merrill Lynch to provide account opening documents, notes of customer meetings, telephone records, and other documents relating to the customers who complained. Merrill Lynch indicated to FINRA that it provided the requested information or documents, but FINRA states that the securities broker dealer failed to comply.
FINRA states that in the first stockbroker investigation, telephone records relating to two customers were not provided by Merrill Lynch. Those records were destroyed by Merrill Lynch’s vendor. FINRA also notes that Merrill Lynch did not timely provide all of the notes concerning meetings between a stockbroker and customers. Merrill Lynch eventually provided more information – but 20 months after it was requested. By March of 2020, the securities broker dealer relayed that it did not identify any more documents to hand over.
FINRA states that the telephone records concerning the third customer were not provided to FINRA until August of 2020. FINRA asked for the documents two years prior. Merrill Lynch blamed its delays on not remembering that it pulled telephone records for the customer. The AWC states that in September of 2020, after Merrill Lynch was asked again by FINRA for any additional documents on file, it handed over new documents that pertained to FINRA’s investigation.
Merrill Lynch also failed to timely comply in an investigation concerning a second stockbroker. FINRA states that a stockbroker was accused by a customer of selling underperforming investments away from Merrill Lynch. The AWC states that FINRA asked Merrill Lynch for any documents relating to the stockbroker’s selling away activities. FINRA states that in April and May of 2020, Merrill Lynch provided documents that related to FINRA’s June 2018 requests. The documents indicated that the stockbroker was taking part in customers’ outside investment transactions relating to products that the firm did not approve for sale. The securities broker dealer blamed the delay in cooperating with FINRA on a problem with its vendor’s tools.
The AWC states that FINRA probed Merrill Lynch for more information after realizing that Merrill Lynch failed to produce some records. The securities broker dealer provided additional records only after this request. This happened again in January 2020, when Merrill Lynch produced more records that showed that the stockbroker raised concerns by Merrill Lynch when it reviewed the stockbroker’s emails. Merrill Lynch blamed its delays in cooperating with FINRA in part on a vendor’s defective search terms.
Merrill Lynch violated FINRA Rules 2010 and 8210 for hindering misconduct investigations.