Merrill Lynch Fined $1 Million for Failing to Supervise Broker

by Wall Street Fraud on October 25, 2011

Unsuitable investmentThe Financial Industry Regulatory Authority (FINRA) recently announced that it has fined Merrill Lynch, Pierce, Fenner & Smith Inc., $1 million for supervisory failures that allowed a stockbroker at Merrill Lynch's branch office in San Antonio, Texas, to use a Merrill Lynch account to operate a Ponzi scheme.

As detailed by FINRA, Bruce Hammonds, the broker at issue, 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 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.

With respect to the case, 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."

Although FINRA permanently barred Hammonds from the securities industry and Merrill Lynch reimbursed all investors who were harmed by Hammond's misconduct, this case highlights a serious lack of oversight that can put investors at risk.

As securities fraud attorneys, we are concerned that this may not be an isolated issue and other brokerage firms may also not have policies and procedures in place to oversee their brokers and protect their clients from investment losses.

At Wall Street Fraud, we are dedicated to offering assistance to those who have been hurt by improper corporate or investment practices.

If you have been the victim of stock brokerage fraud, securities fraud, mutual fund fraud, stockbroker fraud, annuities fraud, or any other type of investment fraud, please contact us today for a free case evaluation. Our talented and aggressive legal and professional staff is eager to help you recover your losses.

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