The Financial Industry Regulatory Authority (FINRA) recently announced that it has censured and fined Merrill Lynch, Pierce, Fenner & Smith Inc. $500,000 for supervisory failures that allowed widespread deficiencies in filing hundreds of required reports, including customer complaints, arbitration claims, and related U4 and U5 filings, and for its failure to file the required reports. The violations, which went undetected for several years, may have hampered investors’ ability to assess the background of certain brokers via FINRA’s Brokercheck system.
Under FINRA rules, when a securities firm hires a broker, it must ensure that information on the broker’s registration application (Form U4) is updated and kept current on the Central Registration Depository (CRD) system. This requirement is important to ensure that investors can research their advisor and access information such as when the advisor joined the industry, how many firms has he/she worked at, and whether the advisor has ever been sued by other clients.
All brokerage firms (including Merrill Lynch) are required to update that information whenever reportable events occur, including regulatory actions against the broker, specific customer complaints, settlements involving the broker, and felony charges and convictions. Typically, those updates must be filed within 30 days of the event. Brokerage firms also are required to notify FINRA within 30 days of the termination of a registered person’s association with a member firm by filing a notice known as Form U5.
In the Merrill Lynch case, FINRA apparently found that:
(1) From 2007 to 2011, Merrill Lynch failed to file or timely file more than 650 required reports, including customer complaints and customer settlements.
(2) From 2005 to 2011, Merrill Lynch failed to report or timely report customer complaints, and related Forms U4 and Forms U5 between 23 percent and 63 percent of the time.
(3) Merrill Lynch failed to adequately train and supervise personnel responsible for customer complaint tracking and reporting, and did not have systems in place to identify the high volume of customer complaints that were not being acknowledged or reported as required. As a result, Merrill Lynch failed to acknowledge nearly 300 customer complaints in a timely manner.
(4) Merrill Lynch failed to file or timely file approximately 300 non-NASD/FINRA arbitrations and criminal and civil complaints that it received for approximately three years.
(5) From July 2007 to June 2009, and again from October 2009 to February 2010, Merrill Lynch failed to make these filings 100 percent of the time.
(6) From 2007 through 2010, Merrill Lynch failed to file related Forms U4 and U5 between 28 percent and 79 percent of the time.
In concluding the settlement, Merrill Lynch neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
The foregoing information is publicly available on FINRA’s website is being provided by The White Law Group. The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, visit https://www.whitesecuritieslaw.com.