Merrill Lynch Pierce Fenner Smith Inc. a brokerage firm headquartered in New York New York has been censured and fined $300,000.00 by Financial Industry Regulatory Authority (FINRA) based upon the firm’s consent to findings that it failed to supervise a registered representative who defrauded a customer of the firm. Letter of Acceptance Waiver and Consent No. 2014041490801 (Dec. 13, 2018).
According to the AWC, from February of 2010 to June of 2010, the firm neglected to supervise stockbroker EW, who engaged in a fraudulent scheme. The AWC stated that when EW became associated with Merrill Lynch in 2009, she failed to inform the firm that she worked for five years at a company owned by MS – a person who was allegedly involved in fraudulent schemes and had bribed public officials.
Apparently, at Merrill Lynch, EW provided professional athletes with financial services. The AWC stated that EW serviced the account of professional athlete, Customer A, where she made recommendations concerning investments Customer A held outside the firm’s auspices. EW reportedly facilitated a meeting between Customer A and MS, falsely claiming to Customer A that MS was a businessman that would help Customer A manage his financial needs and business affairs. EW reportedly helped MS procure access to Customer A’s accounts, which paved the way for MS to misappropriate Customer A’s funds.
Apparently, the firm’s supervision systems flagged e-mails from EW for review, which required the firm’s supervisory personnel to determine if EW possibly violated the policies of the firm. The AWC stated that in at least three circumstances, EW’s e-mails evidenced possible violations of the firm’s procedures and policies; however, those e-mails had not been brought to the firm’s supervisory personnel’s attention for a further review.
Evidently, MS had been forwarded an e-mail from EW that EW received from Customer A regarding a possible private securities transaction. The firm also flagged an e-mail regarding EW’s attempts to end an attorney’s services with Customer A so EW could advise Customer A about a real estate investment that the attorney sought for the customer to avoid. FINRA stated that firm’s failure to supervise the e-mails prevented it from learning about EW’s association with MS.
Moreover, the AWC stated that Merrill Lynch learned that a lawsuit was filed against EW which resulted in a garnishment order. Apparently, the firm knew about EW being subject of a default judgment of $1,694,233.10. The firm reportedly failed to review the complaint alleging EW to have unlawfully helped MS avoid paying debts to individuals who lent money to MS. The AWC stated that the firm’s failure to investigate EW’s legal documents prevented it from discovering that EW was accused of grave misconduct. Further, FINRA stated that Merrill lynch neglected to disclose to FINRA information about EW’s garnishment order, the complaint, or that EW was charged with a felony.
FINRA found that the firm’s conduct was violative of NASD Rule 3010(A), FINRA Rules 2010 and 1122, and FINRA By-Laws Section 2(c) and 3(b).
