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

Industry Spotlight > Broker Dealers

Merrill to Pay $6M for Advisors Who Herded IPO Shares to Friends, Family

Your article was successfully shared with the contacts you provided.

Merrill Lynch agreed to pay about $6 million in fines and disgorgement for improper sales of shares from initial public offerings to industry insiders over the past eight years.

Pre-IPO stakes in Twitter, Facebook, LinkedIn and General Motors, for instance, were sold to Merrill Lynch employees’ immediate family members and some clients who were advisors at other firms, according to the Financial Industry Regulatory Authority.

From 2010 to March 2018, the FInancial Industry Regulatory Authority says, Merrill Lynch made over 1,450 prohibited sales of 325 different IPOs to nearly 150 client accounts in which advisors at other firms or family members of Merrill brokers held a beneficial interest. At least 120 financial advisors working at nearly 80 Merrill branch offices were involved in the prohibited IPO sales.

“IPO shares sold to industry insiders are unavailable to investors who might otherwise have purchased them … ,” according to Susan Schroeder, executive vice president for FINRA’s Department of Enforcement. “Merrill Lynch knew or should have known that these customers were restricted from IPO purchases, but repeatedly sold them shares in violation of FINRA rules.”

The regulator explains that Rule 5130 prohibits member firms from selling IPO shares to some “restricted persons.” This includes immediate family members of its own advisors and clients associated with other broker-dealers.

FINRA also says Merrill failed to:

  • Implement supervisory systems and procedures reasonably designed to achieve compliance with the rule prohibiting IPO sales to industry insiders;
  • Use information in its own customer records to prevent the sale of IPO shares to clients who were restricted persons;
  • Reasonably respond when it learned that it had sold IPO shares to immediate family members of Merrill Lynch financial advisors; and
  • Reasonably train its employees to achieve compliance with the IPO rule.

In the settlement, Merrill Lynch neither admitted nor denied the charges.  

We have enhanced our policies and procedures to properly identify clients who are ineligible to receive IPO shares and to prevent similar conduct in the future,” the broker-dealer said in a statement.


© 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.