Merrill Lynch Facing $13.5 Million Fine

by Glen Shapiro, LawAndTax-News.com, New York

10 March 2005

The New York Stock Exchange (NYSE) announced on Tuesday that it has imposed a $13.5 million fine on brokerage firm, Merrill Lynch & Co. over market timing practices employed by a group of the company's brokers.

According to the NYSE, a group of New Jersey-based brokers made upwards of 3,700 short-term mutual fund trades in 2002, using multiple accounts held by Merrill on behalf of one hedge fund client. Although the brokers were told by upper management to stop their improper trading activity in November 2002, they did not, and the matter was never followed up.

Ruling earlier this week, an NYSE hearing panel found that, between January 2002 and October 2003 the firm failed to adequately supervise certain business activities involving the trading of mutual funds, failed to review and maintain certain incoming and outgoing communications with the public, and failed to make and/or preserve accurate books and records relating to variable annuity product sub-accounts transactions executed by firm employees in accounts outside the firm.

“When a firm discovers that brokers have engaged in misconduct, the Exchange expects and demands that the firm will heighten supervision and take all necessary action to ensure that the conduct has ceased,” Susan L. Merrill, the Exchange's chief of regulatory enforcement explained.

In addition to the $13.5 million fine, the NYSE censured Merrill Lynch, and ordered the firm to review its procedures regarding the creation and retention of documents relating to orders placed on behalf of clients in accounts outside of Merrill Lynch for compliance with Exchange rules, federal securities laws, and other procedures applicable to mutual fund trading.

Merrill Lynch consented to the penalty without admitting or denying guilt.

Recommended