Merrill Lynch fined $1M in broker’s fraud

Bank of America Corp.’s Merrill Lynch unit will pay $1 million to resolve claims that supervisory failures enabled a Texas-based representative to operate a Ponzi scheme using a company account.

Bruce Hammonds, who worked for Merrill Lynch in San Antonio, persuaded 11 people to invest more than $1 million in a fraud he created and ran as B&J Partnership for more than 10 months, the Financial Industry Regulatory Authority said today in a statement.

Finra, the Washington-based brokerage regulator, permanently barred Hammonds from the securities industry in December 2009, according to the statement. Merrill Lynch reimbursed all harmed investors, Finra said.

“Merrill Lynch’s inadequate supervisory system and the firm’s excessive reliance on employee self-reporting enabled Hammonds to facilitate his Ponzi scheme to the detriment of BofA’s Merrill Lynch Unit Fined $1 Million Over Broker’s Fraud investors,” Brad Bennett, head of enforcement at Finra, said in a statement. “Firms must ensure their supervisory systems are designed to properly monitor employee accounts for potential misconduct.”

The brokerage firm failed to capture accounts opened by employees if their Social Security number wasn’t the primary account number, Finra said. As a result, Merrill Lynch failed to monitor 40,000 accounts associated with employees from 2006 to 2010, Finra said.

“The firm detected the irregularities with the accounts, terminated Mr. Hammonds, alerted the authorities and compensated affected clients,” Bill Halldin, a spokesman for Bank of America, said in an e-mailed statement. “We have extensive monitoring in place today and continually take steps to enhance our monitoring systems.”

Merrill Lynch, which was acquired by Charlotte, North Carolina-based Bank of America in 2009, resolved the claims without admitting or denying wrongdoing, Finra said.
–Bloomberg News–

Related Topics: Bank Of America Corp., Financial Industry Regulatory Authority, Merrill Lynch