Merrill Lynch, Pierce, Fenner & Smith Inc., agreed to a $1 million fine to settle FINRA charges it allowed a registered rep at its San Antonio branch office to use a Merrill Lynch account to operate a Ponzi scheme. Over a 10-month period, RR Bruce Hammonds convinced 11 individuals to invest more than $1 million into B&J Partnership, an entity he operated.  Customer funds were deposited into a Merrill business account for B&J that Merrill supervisors approved.  After that, those same supervisors failed to supervise the funds that customers deposited and Hammonds withdrew. Alleged Actions by Hammonds. Hammonds  misrepresented  to  the investors  that  B&J invested  in  S&P  Index futures, oil contracts,  BRIC (Brazil/Russia/India/China) investments  and hedge funds, promising returns ranging from 30% to 100%.  Although the Firm never approved of Hammonds' outside business activities in the B&J partnership,  Merrill supervisors  nonetheless approved  Hammonds' request  to open  a business account in name of B&J - and its primary tax  number was B&J's  tax  ID number,   not  Hammonds'   social  security   number.   FINRA permanently barred Hammonds from the securities industry in December 2009.  Merrill Lynch reimbursed all investors who were harmed by Hammond's misconduct. FINRA Findings of Alleged Violations. The Employee Activity Review System ("EARS') was the Merrill's primary means of monitoring employee account activities.  The supervisory system however, inadequately supervised transactions in some accounts - including the B&J account, thereby failing to prevent or detect on a timely basis the crime. Merrill's supervisory system automatically captured accounts an employee opened using a social security number as the primary tax ID number.   However, if the employee's social security number was not the primary number associated with the account, the account was not captured into the firm's database.  As a result, Merrill relied solely on its employees to manually input these accounts into its supervisory system. FINRA further found that, from 2006 to mid-2010, Merrill 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. FINRA Staff Credits. Investigation by Richard Chin, Brian Vincent, and supervised by Susan Light, Enforcement Chief Counsel. For further details, go to:   [FINRA News Release, 10/4/11]   and   [FINRA AWC 20080139905-02.