The Financial Industry Regulatory Authority (Finra) has fined Merrill Lynch, Pierce, Fenner & Smith Inc. $1 million for failing to supervise a registered representatives who used a Merrill Lynch account to operate a Ponzi scheme, Finra officials said today.
Registered representative Bruce Hammonds, who worked out of Merriill Lynch's San Antonio, Tex., office , 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, according to Finra. 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, according to Finra.
Finra permanently barred Hammonds from the securities industry in December 2009 as a result of the scam and required Merrill Lynch to reimburse 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. 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.
In its settlement with Finra, Merrill Lynch neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
Brad Bennett, Finra's executive vice president and chief of enforcement, said Merrill Lynch's inadequate supervisory system and the firm's excessive reliance on employee self-reporting enabled Hammonds to facilitate his Ponzi scheme.
"Firms must ensure their supervisory systems are designed to properly monitor employee accounts for potential misconduct," Bennett said.