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Monthly Archives: December 2014

FINRA Bars Broker for Stealing $89,000 From an Elderly Customer

On December 22, 2014, FINRA announced that Jeffrey C. McClure has been permanently barred from the securities industry. Mr. McClure, allegedly, wrote himself 36 checks totaling $88,850 drawn from the customer’s bank account, without her knowledge. Through its investigation, FINRA found that from December 2012 to Agust 2014, McClure had access to the checks because the elderly customer had authorized him to pay her rent and other expenses; instead, he deposited the checks amounting to nearly $89,000 to his personal bank account and used the funds for his personal expenses. At the time, Mr. McClure worked for Wells Fargo Advisors, LLC. The affiliated bank that held the accounts, located in Chico, California, has made the customer whole for her losses.

In settling this matter, Mr. McClure neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. FINRA’s investigation was conducted by the Office of Fraud Detection and Market Intelligence and the Department of Enforcement. In a statement, FINRA’s Executive Vice President and Chief of Enforcement, said “FINRA has a zero tolerance policy for brokers who steal form their clients, especially those who are most vulnerable. Rooting out this type of misconduct and removing these kinds of bad actors from the industry is a top priority.”

FINRA Fines Merrill Lynch $1.9 Million Plus Orders it to Pay $540,000 as Restitution to Affected Customers

On December 16, 2014, FINRA fined Merrill Lynch, Pierce, Fenner & Smith Incorporated $1.9 million for fair pricing and supervisory violations in connection with more than 700 retail customer transactions in distressed Motors Liquidation Company Senior Notes (MLC Notes). In addition, Merrill Lynch was ordered to pay $540,000, plus interest, in restitution to affected customers.

Through its investigation, FINRA found that Merrill Lynch’s Global Credit Trading Desk purchased MLC Notes issued by General Motors Corporation, prior to its bankruptcy, from its retail customers at prices below the prevailing market price. The Credit Desk, after accumulating small lots of discounted MLC Notes, sold these Notes to other broker-dealers at a higher price, within the prevailing market price. Accordingly, in 716 instances, Merrill Lynch purchased MLC Notes at prices that were not fair to its customers. In fact, out of the 716 customer transactions 510 of them had markdowns in excess of 10 percent.

In addition, FINRA found that Merrill Lynch did not have in place an adequate supervisory system to detect whether the firm’s Credit Desk executed customer transactions at a fair price. Specifically, the firm lacked post-trade best execution or fair pricing reviews or failed to conduct fair pricing or best execution post-trade reviews. As part of the sanctions, Merrill Lynch is also ordered to submit three reports over the next 18 months regarding the effectiveness of the firm’s supervisory system with respect to the pricing of retail customer transactions executed by the Credit Desk.

In a statement, FINRA said “…We expect firms to adhere to their fair pricing obligations to customers when transacting in lower-price or distressed securities. Even after factoring in the nature of the market for these types of instruments, the markdowns charged were simply unacceptable, as was Merrill Lynch’s failure to conduct post-trade fair pricing or best execution reviews for customer transactions executed on the Credit Desk.” On the other hand, Merrill Lynch neither admitted nor denied the allegations, but consented to the entry of FINRA’s findings.