The Financial Industry Regulatory Authority said Tuesday that it fined Merrill Lynch $1 million for supervisory failures that allowed a financial advisor at a branch in San Antonio to use a Merrill account to operate a Ponzi scheme.
According to FINRA, ex-advisor Bruce Hammonds 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 in San Antonio, 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,” the independent regulatory group said in a press release.
“Firms must ensure their supervisory systems are designed to properly monitor employee accounts for potential misconduct,” said Brad Bennett, FINRA executive vice president and chief of enforcement. “Merrill Lynch’s inadequate supervisory system and the firm’s excessive reliance on employee self-reporting enabled Hammonds to facilitate his Ponzi scheme to the detriment of investors.”
FINRA permanently barred Hammonds from the securities industry in December 2009, and Merrill Lynch reimbursed all investors who were harmed by Hammond’s misconduct, the group says. It also found that Merrill Lynch “failed to have an adequate supervisory system in place to monitor employee accounts for potential misconduct,” according to a press release.