BROWSE BY TOPIC
- Bad Brokers
- Compliance Concepts
- Investor Protection
- Investments - Unsuitable
- Investments - Strategies
- Investments - Private
- Features/Scandals
- Companies
- Technology/Internet
- Rules & Regulations
- Crimes
- Investments
- Bad Advisors
- Boiler Rooms
- Hirings/Transitions
- Terminations/Cost Cutting
- Regulators
- Wall Street News
- General News
- Donald Trump & Co.
- Lawsuits/Arbitrations
- Regulatory Sanctions
- Big Banks
- People
TRENDING TAGS
Stories of Interest
- Sarah ten Siethoff is New Associate Director of SEC Investment Management Rulemaking Office
- Catherine Keating Appointed CEO of BNY Mellon Wealth Management
- Credit Suisse to Pay $47Mn to Resolve DOJ Asia Probe
- SEC Chair Clayton Goes 'Hat in Hand' Before Congress on 2019 Budget Request
- SEC's Opening Remarks to the Elder Justice Coordinating Council
- Massachusetts Jury Convicts CA Attorney of Securities Fraud
- Deutsche Bank Says 3 Senior Investment Bankers to Leave Firm
- World’s Biggest Hedge Fund Reportedly ‘Bearish On Financial Assets’
- SEC Fines Constant Contact, Popular Email Marketer, for Overstating Subscriber Numbers
- SocGen Agrees to Pay $1.3 Billion to End Libya, Libor Probes
- Cryptocurrency Exchange Bitfinex Briefly Halts Trading After Cyber Attack
- SEC Names Valerie Szczepanik Senior Advisor for Digital Assets and Innovation
- SEC Modernizes Delivery of Fund Reports, Seeks Public Feedback on Improving Fund Disclosure
- NYSE Says SEC Plan to Limit Exchange Rebates Would Hurt Investors
- Deutsche Bank faces another challenge with Fed stress test
- Former JPMorgan Broker Files racial discrimination suit against company
- $3.3Mn Winning Bid for Lunch with Warren Buffett
- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
ABOUT FINANCIALISH
We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.
Stay Informed with the latest fanancialish news.
SUBSCRIBE FOR
NEWSLETTERS & ALERTS
FOLLOW US
Red Flags Were Flying at Merrill Lynch
by Howard Haykin
THE PLAYERS. The investment associate (“EW”) was registered with several broker-dealers between 1988 and 2004, and with Merrill Lynch from February 2009 through July 2010 (working with Merrill's above-mentioned Miami office team). During the intervening years - from 2004 until 2009 - EW worked for a real estate development company operated by an individual with a criminal record (“MS”). Prior to his real estate company going bankrupt in March 2009, MS was the subject of news articles that detailed his involvement in bribing public offices as well as other fraudulent schemes.
EW was introduced to the Customer, a professional athlete (“Customer A”) in or about February 2010. Shortly thereafter, she began devoting a significant portion of her time providing him with a variety of financial-related services, including advising him on investments he held away from the Firm and paying his bills on-line from his firm brokerage account.
That same month, EW introduced MS to Customer A, using a fictitious name and falsely representing that MS was a wealthy and successful businessman who could help Customer A with his various, existing business and other financial needs.
WHAT WENT WRONG – RED FLAGS FLY AT MERRILL LYNCH. FINRA charged Merrill Lynch with failing to reasonably investigate and respond to various “red flags” that would have indicated that the investment associate: (i) was engaged in conduct that appeared to violate its policies and procedures; and, (ii) had an association with the 3rd-party con man.
Merrill personnel somehow missed the inconsistencies between EW’s employment application and her CRD records.
- While EW later disclosed her employment with MS's company on her initial Form U4, she omitted any reference to her 5-year employment with MS's company in her Merrill Lynch employment application indicating instead that her last employer was another FINRA member firm in 2004.
Merrill’s email surveillance system flagged several of EW’s emails for review, and pursuant to Merrill’s WSPs, should have been escalated to branch supervisors – but were not despite having been flagged and reviewed.
- On February 17, 2010, EW forwarded to MS an email she received from Customer A regarding a potential investment. ATTENDANT ISSUES:
- It was against Firm policy to share customer information outside of the Firm without customer authorization.
- The investment discussed in the email was not being offered by Merrill and was a potential private securities transaction.
- EW incorrectly identified herself as a "Senior Financial Advisor."
- On March 17, 2010, EW sent an email using a personal email address to a client associate working on her Merrill team. The email contained a non-disclosure agreement regarding a feature film investment. ATTENDANT ISSUES:
- The email indicated that EW might be involved with a private securities transaction (PST) or outside business activity (OBA).
- The email showed that EW was using a personal email address to correspond about business.
- On March 29, 2010, EW received an email from a real estate attorney regarding Customer A. The email string contained in the flagged email showed EW attempting to terminate the attorney's engagement with Customer A and assume control over advising Customer A on a real estate investment he was seeking to unwind. ATTENDANT ISSUES:
- Such services were beyond the scope of what EW was permitted to provide to Merrill customers
Had Merrill broadened its reviews of EW's email, it could have found other indications of potential misconduct.
- In February 2010, EW's other emails indicated her association with EW - e.g., (i) EW assisted in arranging bail for MS; (ii) MS (under his assumed name) had directed that funds be wired from Customer A's brokerage accounts; and, (iii) an access ID and temporary passcode for Customer A's bank account had been provided to EW.
On or about March 25, 2010, Merrill received a garnishment order in connection with a lawsuit filed against EW.
- The papers received by the Firm showed that the court had entered a default judgment against EW for nearly $1.7 million. Although the default judgment and garnishment order were soon vacated, Merrill Lynch did not review the underlying complaint.
- That complaint alleged that EW had taken improper steps to help MS avoid one of his debts, specifically by writing post-dated checks from a bank account she later closed.
This case was reported in FINRA Disciplinary Actions for February 2019.
For further details, go to ... FINRA Disciplinary Actions Online, and refer to Case #2014041490801.
