Merrill Lynch, Pierce, Fenner & Smith fined $2.8 million for supervisory failures

The Financial Industry Regulatory Authority (FINRA) fined Merrill Lynch, Pierce, Fenner & Smith, Inc. $2.8 million for supervisory failures that resulted in overcharging customers $32 million in unwarranted fees, and for failing to provide certain required trade notices. Merrill Lynch has provided $32 million in remediation, plus interest, to affected customers.

“Investors must be able to trust that the fees charged by their securities firm are, in fact, correct. When this is not the case, investor confidence is threatened,” said Brad Bennett, FINRA’s executive vice president and chief of enforcement.

FINRA found that from April 2003 to December 2011, Merrill Lynch failed to have an adequate supervisory system to ensure that customers in certain investment advisory programs were billed in accordance with contract and disclosure documents. As a result, the firm overcharged nearly 95,000 customer accounts fees of more than $32 million.

Merrill Lynch also failed to provide timely trade confirmations to customers in certain advisory programs due to computer programming errors. As a result, from July 2006 to November 2010, Merrill Lynch failed to send customers trade confirmations for more than 10.6 million trades in over 230,000 customer accounts. In addition, Merrill Lynch failed to properly identify whether it acted as an agent or principal on trade confirmations and account statements relating to at least 7.5 million mutual fund purchase transactions. At various times, Merrill Lynch also failed to deliver certain proxy and voting materials, margin risk disclosure statements and business continuity plans.

Merrill Lynch didn’t admit or deny the charges, but consented to the entry of FINRA’s findings.

The Financial Industry Regulatory Authority is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services.

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