Merrill Lynch was ordered by the New Hampshire Bureau of Securities Regulation to pay $26.25 million to settle claims that it failed to adequately supervise a former broker who violated securities rules by, among other things, allegedly trading without authorization in a client’s brokerage accounts.
The amount is the largest monetary sanction in the New Hampshire Bureau of Securities Regulation’s history, and included a fine of $1.75 million plus costs of $250,000, along with restitution of $24.25 million, according to a consent order filed Monday by the regulator.
Merrill was also ordered to maintain compliance undertakings specifically put in place to address the compliance failures uncovered by the Bureau’s investigation.
Commenting on the settlement, Merrill Lynch spokesman William Halldin told ThinkAdvisor: “We have enhanced our policies and monitoring systems over the last several years to more closely monitor certain types of client account activity.”
The former broker sanctioned, Charles Kenahan, was also permanently barred from the securities business in New Hampshire.
In addition to trading without authorization, he allegedly mismarked trade confirmations, excessively traded stocks and initial public offerings, overcharged commissions, and inappropriately traded inverse and leveraged products, according to the state regulators.
Kenahan’s “misconduct led to high commissions for Merrill Lynch and Kenahan and heavy losses for the investor,” the regulator said. He was terminated by Merrill in July 2019.
The client — a high-net-worth investor from Rye, New Hampshire, who had worked with Merrill client since 2007 — moved his accounts away from the wirehouse after the incidents in question, the regulator noted.
The ex-rep is no longer a registered broker or RIA, according to his report on the Financial Industry Regulatory Authority’s BrokerCheck website. He had a total of six disclosures on his report over the course of his 34 years in the industry.
The client complained to the Bureau in January 2019, the regulator said, noting that, although the investor was knowledgeable about securities markets, he entrusted the firm and Kenahan to recommend investment strategies and securities used in the family accounts.
One such recommendation was for the purchase of a company called Monitise, a low-priced stock not even followed by Merrill research, according to the regulator, adding Kenahan repeated that conduct across multiple accounts of the client. The client went on to lose millions of dollars in Monitise and in other low-priced stocks, the regulator alleged.
“This case is about an abuse of trust committed by Merrill Lynch and Kenahan,” according to Jeff Spill, deputy director and head of enforcement for the Bureau. “The investor trusted Merrill Lynch and Kenahan to give him good advice and act in good faith. Ultimately, Kenahan’s recommendations benefited Kenahan and Merrill Lynch and not the investor.”
— Check out FINRA Suspends Ex-Morgan Stanley Rep Who Took Client Info to New Firm on ThinkAdvisor.