Merrill Settles on Longtop -- WSJ

By Michael Rapoport 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 9, 2018).

Bank of America Corp.'s Merrill Lynch unit agreed Thursday to pay $1.4 million to settle Securities and Exchange Commission allegations that it didn't do enough to investigate red flags at a Chinese company whose unregistered securities it sold.

Merrill sold almost three million unregistered shares of financial-software company Longtop Financial Technologies Ltd. in 2011, the SEC said, even though it was aware of multiple questions about Longtop.

The red flags included a purported "gift" of the shares before the sale that might have not been valid; accusations of fraud at the company, and the resignation of the company's auditor, which cited questions about Longtop's finances, the SEC said.

A Merrill spokesman said the firm was "pleased to resolve this matter" and noted the Longtop sales were executed through an international wealth-management business that Merrill has since sold. It didn't admit or deny the SEC's allegations in agreeing to the settlement.

The sales generated almost $38 million in proceeds for Longtop and its affiliates, the commission said. Merrill is paying a $1.25 million fine plus disgorgement and interest.

The SEC has filed a number of cases in recent years against financiers, auditors and other "gatekeepers" who helped Chinese companies gain access to U.S. markets.

Many of the Chinese companies later encountered questions from regulators about their accounting or disclosure, and U.S. investors lost billions of dollars when their stocks tumbled as a result.

Longtop representatives couldn't be reached for comment. The SEC revoked Longtop's registration to trade in the U.S. in December 2011.

Write to Michael Rapoport at [e-mail]

(END) Dow Jones Newswires

March 09, 2018 02:47 ET (07:47 GMT)

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