The Financial Industry Regulatory Authority (FINRA) announced that Merrill Lynch will pay more than $7 million in fines for inadequately supervising its customers’ use of leverage. The settlement includes Merrill Lynch repaying some customers for losses on Puerto Rican securities in leveraged accounts.
Merrill Lynch Pierce Fenner & Smith Inc. will pay a $6.25 million fine to settle FINRA allegations that the brokerage firm failed to ensure customers were not using funds from certain credit lines to buy securities. The firm will pay an additional $780,000 in restitution to 22 customers of its Puerto Rican branch after FINRA found it failed to supervise the suitability of their transactions, leading to losses after the customers’ funds became highly concentrated in risky Puerto Rican securities.
According to FINRA, from January 2014 through November 2014, Merrill Lynch failed to maintain adequate supervisory systems to ensure compliance with applicable law when operating a securities-based lending program called loan management accounts (LMAs).
Under that program, customers could open an LMA to borrow money from Merrill’s banking affiliate, Bank of America, using securities in their Merrill Lynch accounts as collateral. During the time in question, customers opened 121,000 LMAs and received more than $85 billion in total credit.
FINRA charged Merrill Lynch with failing to train its representatives on the different types of accounts – namely whether loan proceeds could be used to buy securities. Merrill also was sanctioned for over-concentrating Puerto Rico customer accounts in risky securities purchased with LMAs. As a result, approximately 25 customers with modest net worth and investment objectives suffered heavy losses after investing more than 75% of their account assets in the securities despite the risks.
Call a Los Angeles Securities Fraud Attorney Today
Investing can be quite complicated, and even brokers and brokerage firms can make serious mistakes. If you invested with Merrill Lynch or in risky Puerto Rico securities, you may have certain legal rights that require your immediate attention.
Contact an experienced Los Angeles securities fraud attorney today for a consultation to discuss your rights and options.