|For Release: |
|Merrill Lynch, Pierce, Fenner & Smith Inc. Action|
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Merrill Lynch, Pierce, Fenner & Smith Inc., $1 million for supervisory failures that allowed a registered representative at Merrill Lynch's branch office in San Antonio, Texas, to use a Merrill Lynch account to operate a Ponzi scheme.
Bruce Hammonds, the registered representative, convinced 11 individuals to invest more than $1 million in a Ponzi scheme he created and ran as B&J Partnership for over 10 months. Merrill Lynch supervisors approved Hammonds' request to open a business account for B&J and failed to supervise funds that customers deposited and Hammonds withdrew. FINRA permanently barred Hammonds from the securities industry in December 2009. Merrill Lynch reimbursed all investors who were harmed by Hammond's misconduct.
FINRA found that Merrill Lynch failed to have an adequate supervisory system in place to monitor employee accounts for potential misconduct. Merrill Lynch's supervisory system automatically captured accounts an employee opened using a social security number as the primary tax identification number. However, if the employee's social security number was not the primary number associated with the account, the system failed to capture the account in its database. Instead, Merrill Lynch solely relied on its employees to manually input these accounts into its supervisory system. FINRA also found that from January 2006 to June 2010, Merrill Lynch failed to monitor an additional 40,000 employee/employee-interested accounts, which were not reported for certain periods of time and therefore not available on the supervisory system.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, "Firms must ensure their supervisory systems are designed to properly monitor employee accounts for potential misconduct. Merrill Lynch's inadequate supervisory system and the firm's excessive reliance on employee self-reporting enabled Hammonds to facilitate his Ponzi scheme to the detriment of investors."
In concluding this settlement, Merrill Lynch neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
FINRA's investigation was conducted by Richard Chin and Brian Vincent under the supervision of Susan Light, Enforcement Chief Counsel.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2010, members of the public used this service to conduct 17.2 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database.
FINRA, 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. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.