Regulator Slaps Merrill Lynch With $7 Million Penalty

By Joshua Jamerson 

The Financial Industry Regulatory Authority said it fined Merrill Lynch $7 million for inadequately supervising its customers' use of leverage in Merrill brokerage accounts.

The penalty for Merrill, a unit of Bank of America Corp., consists of $6.25 million in fines plus $780,000 in restitution.

Merrill's loan management accounts, or LMAs, are lines of credit that allow customers to borrow money from an affiliated bank using securities held in the brokerage accounts as collateral. Finra, in a press release Wednesday, said Merrill "lacked adequate supervisory systems and procedures regarding its customers' use of proceeds from these LMAs" from January 2010 through November 2014.

Finra, which regulates securities firms in the U.S., said Wednesday it separately found that from January 2010 through July 2013, Merrill lacked systems and procedures to ensure the suitability of transactions in certain Puerto Rican securities such as municipal bonds and closed-end funds. Holdings in such securities were highly leveraged through either LMAs or margin, Finra said. Merrill has already reimbursed some customers and, as part of the settlement, will pay about $780,000 in restitution to 22 remaining customers.

Merrill, which in agreeing to the payment neither admitted nor denied the charges, said the firm cooperated fully with the regulator's inquiry and has since strengthened its internal controls and procedures.

Write to Joshua Jamerson at [e-mail]

(END) Dow Jones Newswires

November 30, 2016 13:08 ET (18:08 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.