On December 13, 2018,

FINRA fined Merrill Lynch, Pierce, Fenner & Smith Incorporated $300,000 for failure to reasonable supervise an associated person who was part of a scheme to defraud a firm’s customer.  Merrill Lynch failed to investigate red flags raised by the registered representaitve’s email communications, and it failed to follow up on a $1.7M default judgment entered against the same registered representative.  As well as the firm’s failure to disclose to FINRA these reportable events, together with a felony charge against the registered agent.      

During the investigation period, FINRA found that in three instances, Merrill Lynch flagged for review some of the registered representative’s email communications, showing possible violations of the firm’s policies and procedures.  It failed to further investigate these flags.  In doing so, Merrill Lynch would have learned that the representative, allegedly, had a close association with a con man, that she was providing services beyond what the firm permitted, and that she was potentially involved with private securities transactions. 

Another red flag was raised on March 25, 2010, when the Firm’s payroll department received a garnishment order, in connection with a lawsuit filed against the registered representative.  It showed that the representative had a default judgment against her, in the amount of $1,694,233.10.  Merrill Lynch failed to review the underlying complaint, although the default judgement and garnishment order were eventually vacated.  The firmed also failed to report to FINRA several events related to the registered representative, including the garnishment order, as well as the felony charges against her for writing post-dated checks.

Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to reasonably supervise this associated person.