National investment loss lawyers KlaymanToskes reports that the Financial Industry Regulatory Authority (“FINRA”) has censured Merrill Lynch and ordered the brokerage firm to pay $3 million in fines due to deficiencies in its trade-monitoring systems. These failures potentially allowed for manipulative trading activities that reportedly went undetected for years.
According to FINRA’s investigation, from December 2015 onwards, Merrill Lynch did not maintain a “reasonably designed” system of supervisory procedures to identify potentially manipulative trading. Instead, the firm relied on third-party automated surveillance systems, which FINRA found to be too narrowly focused to detect all forms of market manipulation, such as wash trading and prearranged trading. Moreover, Merrill Lynch failed to adequately assess whether these surveillance systems met its regulatory requirements.
FINRA’s findings indicate that Merrill Lynch did not implement sufficient oversight regarding its third-party monitoring tools, including an over-the-counter (OTC) surveillance gap from mid-2017 to late 2018. Additionally, Merrill Lynch reportedly did not review numerous alerts generated by its surveillance systems, failing to investigate approximately 155 alerts related to some 700 potentially manipulative equity trades and about 1,000 alerts for roughly 125,000 potentially manipulative options trades. These lapses continued until August 2020, when Merrill Lynch responded to a separate regulatory inquiry.
Merrill Lynch neither admitted nor denied FINRA’s allegations but agreed to a censure and to pay a $3 million fine. FINRA will receive $669,000 of the fine, with the remainder paid to exchanges including Nasdaq and the New York Stock Exchange. Merrill Lynch has 180 days to confirm in writing to FINRA that it has addressed and remediated the issues highlighted by the regulator.
According to FINRA, brokerage firms like Merrill Lynch are responsible for implementing and maintaining robust supervisory systems to detect and prevent manipulative trading activities. Investors may be entitled to financial recovery if their brokerage firm failed to provide adequate supervision or if their financial advisor engaged in unsuitable or unlawful trading practices.
Investment firms are obligated to act in the best interests of their clients by providing suitable investment advice and ensuring that all trading activities are conducted transparently. Firms may be held liable for any losses incurred by their clients due to fraudulent trading practices, misrepresentations, or omissions of material facts, or if there is an overconcentration of the client’s portfolio in a particular market sector or security.
If you have concerns about your investments with Merrill Lynch, or believe you have been impacted by the firm’s trade-monitoring failures, contact KlaymanToskes at (888) 997-9956 or by email at investigations@klaymantoskes.com for a free and confidential consultation to discuss your recovery options. We do not collect attorney’s fees unless we are able to obtain a financial recovery for you.
KlaymanToskes is a leading national securities law firm specializing in securities arbitration and litigation on behalf of retail and institutional investors worldwide. The firm has recovered over $600 million for clients in FINRA arbitrations and other securities litigation matters. With offices in California, Florida, New York, and Puerto Rico, KlaymanToskes is dedicated to helping investors recover their losses and holding brokerage firms accountable for their actions.
KlaymanToskes, P.A.
Lawrence L. Klayman, Esq.
888-997-9956
investigations@klaymantoskes.com
www.klaymantoskes.com
Some of the information in this post was sourced from public FINRA records, as of September 4, 2024. If you believe any information has been reported incorrectly, please contact our firm at 1-888-997-9956.