The Financial Industry Regulatory Authority sanctioned a former Merrill Lynch representative for signing 15 subscription agreements with a non-affiliated third-party investment advisor on behalf of Merrill without authorization and then failing to comply with a direction from management to stop violating its rules, according to FINRA.
Without admitting or denying the findings, Thomas M. Murphy signed a FINRA letter of acceptance, waiver and consent Jan. 31 in which he agreed to a four-month suspension from associating with any FINRA member firm and pay a $5,000 fine. FINRA accepted the letter Tuesday.
Murphy is no longer registered as a broker, according to FINRA’s BrokerCheck website. However, he has been serving as a registered investment advisor for Charlesworth & Rugg since 2018, according to the Securities and Exchange Commission website.
Merrill declined to comment Wednesday. Scott G. Grubin, a partner at law firm Barton LLP who represented Murphy, didn’t immediately respond to a request for comment.
In September 2014, while serving as a registered representative in Merrill’s self-directed brokerage business, Murphy was approached by a Merrill client who sought his help in transferring cash from her existing self-directed Individual Retirement Account at the firm to an account at a third-party fund manager for the purpose of making a qualified investment in a private real estate fund outside of her account, according to the FINRA AWC letter.
In assisting the client, Murphy signed the fund’s subscription agreement as an “authorized signatory” of Merrill in its capacity as custodian of the client’s IRA.
Later, in 2017, while serving as a financial advisor in-training for Merrill’s full-service brokerage business, Murphy was approached by the same third-party fund manager to help additional investors use cash held in self-directed IRAs at Merrill to make qualified investments in private real estate funds outside of their accounts at Merrill, FINRA said.
As part of his efforts to assist those self-directed clients, Murphy executed an additional 14 subscription agreements between August and November 2017 as an “authorized signatory” of Merrill, according to the FINRA letter. Seven of the subscription agreements were executed after Oct. 19, 2017, when Merrill instructed him to cease any involvement with the third-party fund manager.
Murphy did not receive any compensation from the third-party fund manager for his actions, according to the FINRA letter. However, he was not authorized by Merrill to execute the subscription agreements, and the firm’s policies prohibited employees from executing documents on its behalf, FINRA pointed out.
“Murphy’s conduct created confusion over Merrill Lynch’s role in the investments and whether the transfers from the clients’ IRAs to the private funds would be treated as qualified distributions,” the FINRA letter said.
The ex-broker’s actions violated FINRA Rule 2010 (governing standards of commercial honor and principles of trade), according to FINRA.
In a Form U5 filed April 13, 2018, Merrill reported that Murphy had been discharged on March 14, 2018, for “signing subscription agreements with a non-affiliated, third-party investment advisor on behalf of the Firm without authorization, and failing to comply with a direction from management,” FINRA noted.