Merrill Lynched Fined Nearly $1 Million for Alleged ACH Transfer Supervision Failure
According to a FINRA Letter of Acceptance, Waiver & Consent, from May 2013 through November 2018, Merrill Lynch allegedly failed to supervise the transmittal of customer funds via externally-initiated Automated Clearing House) transfers. As a result, the brokerage firm failed to detect that two of its registered representatives were able to steal in excess of $6 million.
Merrill Lynch’s Failure to Reasonably Supervise ACH Transfers
In May 2013, Merrill Lynch terminated a registered representative who made payments exceeding $100,000 from two of her customer’s brokerage accounts to her own accounts through externally-initiated ACH transfers.
By 2013, Merrill Lynch was aware of the risk that brokers could steal money from customers via ACH transfers initiated outside the firm.
At the time, the registered representative was terminated for this misconduct, two other Merrill representatives were engaged in similar misconduct.
What are ACH Transfers?
ACH transfers are electronic, bank-to-bank money transfers processed through the Automated Clearing House (ACH) Network. FINRA’s AWC notes that the ACH network is a significant and growing component of money transfers. For instance, in 2013, approximately $38 trillion was transferred over the ACH network; in 2018, approximately $51 trillion; and, in 2020, approximately $62 trillion.
Merrill Lynch’s Knowledge of Risk of Its Registered Representatives Could Steal Customer Funds via ACH Transfer
According to FINRA, from January 2011 to December 2017, Representative 1 at Merrill Lynch made approximately 270 unauthorized ACH transfers from five customer accounts to his credit card accounts. These transfers totaled approximately $3.2 million, and the majority of the affected customers were seniors. He concealed his fraud, in part, by creating and distributing unofficial account summaries to the customers, which contained inflated account values.
Also, from December 2007 through November 2018, Representative 2 at Merrill Lynch made over 300 unauthorized ACH transfers from eight customer accounts, primarily to pay his credit card accounts. These transfers also totaled approximately $3.2 million.
Merrill Lynch’s Background in Failing to Monitor Transmittal of Funds in Customer Accounts
In August 2012, Merrill Lynch was fined $450,000 for its failure to establish, maintain, and enforce a supervisory system reasonably designed to adequately review and monitor the transmittal of funds from the accounts of customers to third-party accounts, in violation of NASD Rules 3010, 3012(a)(2)(B) and 2110, and FINRA Rule 2010. In that matter, one of the firm’s registered representative was able to convert—through wires and checks—$887,931 from 13 customer accounts.
Merrill Lynch Consents to $950,000 Fine.
Merrill Lynch agreed to sanctions, which included a censure and a $950,000 fine.
Recover Investment Losses from Unauthorized ACH Transfers
Brokerage firm customers with investment losses exceeding $100,000 resulting from unauthorized ACH transfers are encouraged to contact Lawrence L. Klayman, Esq. at (561) 542-5131.
KT is a leading national securities law firm which practices exclusively in the field of securities arbitration on behalf of retail and institutional investors throughout the world in large and complex securities matters. KT has recovered more than $225 million for investors in FINRA arbitrations. KT has office locations in California, Florida, New York, and Puerto Rico.
Lawrence L. Klayman, Esq.