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Regulation and Compliance > Federal Regulation > SEC

SEC Fines Merrill for Unregistered Securities Sales

By Melanie Waddell

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The Securities and Exchange Commission said Thursday that it has settled charges against Merrill Lynch for the broker-dealer’s failure to perform required gatekeeping functions in the unregistered sales of securities on behalf of a China-based issuer and its affiliates.

The SEC’s order found that Merrill Lynch sold almost 3 million shares of Longtop Financial Technological Ltd.’s securities into the market despite red flags indicating that the sales could be part of an unlawful unregistered distribution.

“Ultimately, the distribution generated almost $38 million in proceeds for the overseas issuer and its affiliates,” the SEC said.

Merrill must pay a $1.25 million penalty and more than $154,000 in disgorgement and prejudgment interest from commissions and fees earned on the improper sales.

The SEC has revoked the registration of Longtop’s securities.

“Broker-dealers are important gatekeepers,” said Antonia Chion, associate director of the SEC’s Division of Enforcement, in a statement. “A broker-dealer has a duty to conduct a reasonable inquiry and know its customers before effecting unregistered sales of securities.”

A Merrill spokesman said the matter involved Merrill’s wealth management office in Singapore, which Merrill sold in 2013. “We are pleased to resolve this matter, ” he said.

Merrill no longer has a wealth management business outside the U.S., the spokesman said.

Merrill neither admitted nor denied the SEC’s findings but agreed to be censured and consented to the order requiring it to cease and desist from committing or causing any future violations of the registration provisions of the Securities Act.

— Check out Wells Fargo Team Joins UBS, Another Goes Indie With Fidelity: Recruiting Roundup on ThinkAdvisor.

Melanie Waddell

@Think_MelanieW

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