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FINRA Suspends Merrill Rep Over Early UIT Rollovers

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What You Need to Know

  • FINRA has suspended the Merrill Lynch rep and supervisor for three months and fined him $5,000.
  • FINRA has imposed the same sanctions on a former Merrill rep over early UIT rollovers also.
  • Merrill was ordered to pay more than $11 million over early UIT rollovers and failure to properly supervise its reps.

The Financial Industry Regulatory Authority suspended and fined a Merrill Lynch rep for his role in early rollovers of unit investment trusts (UITs).

On Friday, FINRA ordered Merrill to pay more than $8.4 million in restitution to more than 3,000 clients who incurred potentially excessive sales charges related to early UIT rollovers and fined the firm $3.25 million for failing to reasonably supervise such transactions.

Kelly Wayne Feehrer has been registered as a rep with Merrill since October 1990 and as a supervisor since September 1995. He signed a FINRA letter of acceptance, waiver and consent on June 14 in which he agreed to the imposition of a three-month suspension and $5,000 fine.

Meanwhile, a former Merrill rep, Scott R. Mathews, signed a FINRA AWC letter on June 21 in which he agreed to the imposition of the same suspension and fine as Feehrer over early UIT rollovers. Mathews was registered as a rep with Merrill from October 2009 through December 2020, when the firm filed a Form 5 Uniform Termination Notice disclosing that the broker voluntarily resigned.

FINRA signed each of the letters Friday.

Merrill on Monday declined to comment on the allegations against Feehrer and Mathews or say if there were other reps at the firm who were involved in the UIT rollovers during the same period. An attorney who represented Mathews and Feehrer did not immediately respond to a request for comment.

Between Jan. 1, 2011 and Dec. 31, 2015, Feehrer engaged in an unsuitable pattern of short-term trading of UITs in client accounts, FINRA alleged. During the period, Feehrer recommended that more than 200 of his clients roll over UITs more than 100 days prior to their maturity on almost 3,000 occasions, FINRA said.

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Although his clients’ UITs typically had a 15- or 24-month maturity period, Feehrer recommended that they sell their UITs after holding them for, on average, only 215 days and use the proceeds to buy a new UIT, FINRA alleged.

Of the nearly 3,000 early rollovers recommended by Feehrer, about 190 were “series-to-series” rollovers in which he recommended that the clients roll over UITs before their maturity dates in order to purchase a subsequent series of the same UIT, which, “generally had the same or similar investment objectives and strategies as the prior series,” FINRA said.

During the same period, Mathews recommended that his clients roll over UITs more than 100 days prior to their maturity on about 1,800 occasions, FINRA alleged. Although his clients’ UITs typically had a 15- or 24-month maturity period, Mathews recommended they sell their UITs after holding them for, on average, only 262 days and use the proceeds to buy a new UIT, FINRA said.

Of the approximately 1,800 early rollovers recommended by Mathews, about 330 were “series-to-series” rollovers, according to FINRA.

Mathews is no longer a registered broker or advisor, according to his report on FINRA’s BrokerCheck website. But Feehrer is still registered as a broker and advisor, and still serving as a Merrill rep and supervisor, according to FINRA.

(Photo: Shutterstock)