More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
FINRA reached a decision in a convoluted case involving Merrill Lynch (BAC) and a Brazilian heiress on Tuesday, requiring Merrill Lynch to pay $3.6 million.
The case involves losses that Camelia Nasser de Kassin said resulted from unauthorized trading by her brother, Ezequiel. She had been seeking $21 million related to losses on nearly $390 million in trades. The Nassers are a prominent banking family in Brazil.
“Based upon the testimony given by [Marc] Bonnant [of Merrill] at the hearing, the panel concluded that Bonnant's attention to his fiduciary responsibilities to claimant was less than adequate,” the FINRA arbitration panel said in its decision. “The panel admonishes [Merrill Lynch] for lapses in record keeping and supervisory procedures.”
It also stated, “There was no evidence, however, that these deficiencies were either widespread throughout [Merrill’s] organization, meriting further action, or material to the claims before the panel.”
The case was filed in the name of Sophin Investments, which had been established to handle Kassin's inheritance from the banker Edmond Safra, according to The Wall Street Journal. It also comes on the heels of other litigation dating to 2008, when Merrill won a $99 million judgment against the Nasser family, a Reuters report said earlier this week.
In the recently settled FINRA decision, losses stemmed from investments in firms such as Bear Stearns and Lehman Brothers through naked puts. This prompted Sophin to argue that Merrill was not properly supervising staff, and Merrill responded with a counterclaim.
FINRA ruled that Merrill must pay Sophin $6.1 million, and that Sophin must give Merrill $2.5 million.