FINRA Fines Merrill Lynch $1 Million for Supervisory Failures that Permitted a Registered Representative to Operate a Ponzi Scheme

Person Pyramid.jpgThe Financial Industry Regulatory Authority (“FINRA“), issued a news release on October 4, 2011 announcing that it had fined the broker-dealer Merrill Lynch for failing to have a supervisory system in place that would properly monitor employee accounts. FINRA stated that Bruce Hammonds, who at the time was a registered representative of Merrill Lynch, was permitted to open a business account but failed to supervise funds that customers deposited and Hammonds withdrew. Mr. Hammonds ended up “convincing more than 11 individuals to invest more than $1 million in a Ponzi scheme” run through the business account, FINRA disclosed.

FINRA further reported that Merrill Lynch’s “inadequate supervisory system and the firm’s reliance on employee self-reporting enabled Hammonds to facilitate his Ponzi scheme, to the detriment of investors.” Merrill Lynch’s system, one that could only be effective if an employee did not properly set their social security number as the primary number associated with the account was found by FINRA to properly capture the account, which allowed Mr. Hammonds to perpetuate his scheme.

Firms’ failures to properly supervise their registered representatives is something Malecki Law takes very seriously, and we have launched investigations into several such alleged schemes, including one allegedly perpetrated by Carr Miller Capital, LLC and the Van Zandt Agency.

If you have questions or regarding these or other questionable business schemes with broker-dealers, contact the attorneys at Malecki Law for the confidential consultation.

FINRA’s September 7, 2011 News Release can be found here.