Bank of America and its subsidiary, Merrill Lynch, have reached a settlement with the Financial Industry Regulatory Authority over violations involving their supervisory systems, according to AdvisorHub.
According to FINRA’s letter of acceptance, waiver and consent, BofA and Merrill Lynch failed to review roughly 700 equity trades and 125,000 options trades that were “potentially manipulative.” The settlement stems from violations that occurred over several years, beginning in 2015 for Merrill Lynch and 2019 for Bank of America Securities
A fine of $3 million was imposed, and Merrill Lynch and BofA Securities were censured, but they did not admit or deny the allegations. They agreed to a six-month deadline for remediating the deficiencies.
The AWC letter noted that both entities relied on third-party surveillance systems to detect manipulative practices, such as wash trading and prearranged trading. These activities were not properly flagged due to the “too narrow” parameters set within the surveillance systems. In wash trading, a stock is bought and sold simultaneously to give the impression of heightened activity, and prearranged trading can give the impression of sales without actually changing the trader’s market position.
“[T]he firm did not take reasonable steps … to determine whether these parameters were reasonable or additional surveillances were necessary,” FINRA stated. “The firm could not explain why it initially selected the particular modules that it used or why it did not select other modules that were available from the vendor.”
Furthermore, the authority said that for the last six months of 2022, Merrill and BofA failed to file U4 updates regarding changes to brokers’ work addresses and outside business activities within FINRA’s 30-day window. This was found to be a violation of FINRA Rule 1122, which states, “No member or person associated with a member shall file with FINRA information with respect to membership or registration which is incomplete or inaccurate so as to be misleading, or which could in any way tend to mislead, or fail to correct such filing after notice thereof.”
The other violations involved Rule 3010, requiring firms to maintain an effective supervisory system and Rule 2010, requiring members to adhere to high standards of commercial honor.
A spokesperson for BofA and Merrill declined to comment. FINRA said its decision regarding the fine took into account that Merrill had self-reported the issue and “took prompt action to remediate it.”
FINRA added that Merrill and BofA Securities enhanced “their supervisory systems to address deficiencies,” the letter said. The two firms, which shared supervisory systems, uncovered the issue in February 2023.
The attorneys at Lewitas Hyman have decades of experience dealing with securities fraud cases and have a deep understanding of how capital markets and financial service firms are intended to work to protect investors. If you think your financial professional or firm engaged in misconduct that caused you investment losses, contact Lewitas Hyman at (888) 655-6002 or through our online contact form for a no-cost evaluation of your matter.
