Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > Federal Regulation > FINRA

FINRA Fines Merrill, Credit Suisse

Your article was successfully shared with the contacts you provided.

The Financial Industry Regulatory Authority said recently that it fined Credit Suisse Securities (USA) LLC $4.5 million and Bank of America’s Merrill Lynch $3 million for “misrepresenting delinquency data and inadequate supervision in connection with the issuance of residential subprime mortgage securitizations (RMBS).”

FINRA said that in 2006, Credit Suisse misrepresented the historical delinquency rates for 21 subprime RMBS it underwrote and sold. The group also says that “for six of the 21 securitizations, the delinquency errors were significant enough to affect an investor’s assessment of subsequent securitizations, as it was referenced in four subsequent RMBS investments.”

In the Acceptance, Waiver and Consent (or AWC) Letter submitted by Credit Suisse, the investment bank says that on or around November 1, 2006, it was informed that one of its “master servicers” had provided erroneous information to a trustee in connection with the delinquency data for certain RMBS from January to September of 2006. The master servicer, i.e., the originating bank, said it had found the cause of the errors but did not correct the errors in the static pool of information posted on the Regulation AB website. Furthermore, the master servicer and trustee “informed Credit Suisse that they believed the errors were immaterial and that they did not intend to provide investors with amended monthly reports.”

In a separate case, FINRA found that Merrill Lynch negligently misrepresented the historical delinquency rates for 61 subprime RMBS it underwrote and sold. However, in June 2007, after learning of the delinquency errors, Merrill Lynch promptly recalculated the information and posted the corrected historical delinquency rates on its website, according to the regulatory group.

Merrill Lynch also failed to establish a reasonable system to supervise and review its reporting of historical delinquency information, FINRA says. (On January 1, 2009, Merrill Lynch was acquired by Bank of America, but the firm continues to do brokerage business under its own individual broker-dealer registration.) In eight instances, the delinquencies were significant enough to affect an investor’s assessment of subsequent securitizations, as it was referenced in five subsequent RMBS investments.

“We are pleased to resolve this matter, which pre-dated Bank of America’s acquisition of Merrill Lynch. Merrill Lynch identified this problem and corrected it by September 2007,” Bank of America said in a statement.

In its communications with FINRA, Merrill said that on or about June 2007, it discovered that it had posted inaccurate information on its Reg AB website that both under- and overstated delinquencies. “These errors in delinquency reporting had been caused by an incorrect data feed that populated information from the wrong column of the database that Merrill Lynch used to populate the Reg AR website after Merrill Lynch took this function in-house,” Merrill stated in its agreement letter. “These errors, which variously understated or overstated mortgage pool delinquencies, affected static pool information for 61 subprime securitizations posted on the Reg AB website from January 2006 through June 2007.”


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.