Articles Posted in Merrill Lynch

Ex-American Reality CFO to Go to Prison for 18 Months
In Manhattan, a US District Court Judge has sentenced Brian Block to 18 months behind bars. Block, who was the CFO of American Reality Capital Properties, was found guilty of fraud when he inflated the financial statements of the real estate investment trust.

Prosecutors accused Block of inputting bogus figures when preparing the REIT’s financial reporting. He allegedly did this to hide a calculation mistake that occurred in an earlier financial report.

Following the disclosure of the accounting misstatements, American Realty’s share price plunged, taking with it over $3B of the REIT’s market worth. It was in late 2014 that the REIT announced that employees had purposely hid accounting errors.

The REIT’s ex-chief accounting officer, Lisa McAlister, has also pleaded guilty to charges over this matter.

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Ex-Merrill Lynch Broker Pleads Guilty to Bank Fraud
Jeffrey Kluge, a longtime Merrill Lynch broker, has pleaded guilty to defrauding two banks of more than $8.7M. His bank fraud ran from 2001 through November 2016.

Kluge’s plea agreement said that he fabricated account statements under Merrill Lynch’s name and pledged fake collateral to the banks so he could set up multi-million dollar credit lines. For instance, in 2001 he was able to get a $150K credit line with Alliance Bank in Minnesota by telling the financial institution that he had enough municipal bond funds as collateral. In fake account statements he sent the bank as evidence of these bond holdings, Kluge concealed from Alliance Bank that he had already promised the assets in the accounts for loans from the firm.

In 2007, Kluge was able to get a $1M credit line from Platinum Bank, which is also in Minnesota. He defrauded Platinum Bank in similar fashion.

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The Financial Industry Regulatory has barred a broker who worked at Merrill Lynch for almost half a century from the securities industry. Louise J. Neale left the broker-dealer and voluntarily ended her registration with the firm last year during an internal probe about her supervisory performance involving fund transactions. She later refused to testify about her resignation before FINRA. This is a violation of the self-regulatory organization’s rules and was immediate grounds for the industry bar. Although Neale worked at Merrill since 1968, it wasn’t until 2003 that she became a registered representative and later a supervisor.

In an unrelated case, FINRA barred another ex-broker for violating firm policies after he, too, refused to testify about the allegations in front of the SRO. John Simpson worked at RBC Capital Markets from 3/2009 to 2/2016. He was let go by the firm for violating its policies about discretion related to client accounts.

Meantime, FINRA has barred two ex-JP Morgan (JPM) brokers. One of the brokers, Brian Alexander Torres, had only been in the securities industry for two months when he was fired by the broker-dealer. Torres admitted that he misappropriated funds from the firm’s affiliate bank. Finra asked Torres for information and documents, but he would not provide them nor would he testify.

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Financial Industry Regulatory Authority Fines Merrill Lynch $2.8M

Finra has fined Merrill Lynch, Pierce, Fenner and Smith Inc. $2.8 million. By settling, the firm is not denying or admitting to the self-regulatory organization’s charges.

FINRA said because of system errors, Merrill Lunch inaccurately reported millions of trades.The regulator said that Merrill Lynch’s supervisory system as it relates to specific matters related to documenting, reporting, and records was  not designed in a reasonable manner.

 

Ernst & Young Settles Audit Failure Charges By Agreeing to Pay Over $11.8M

Ernst & Young LLP has agreed to resolve U.S. Securities and Exchange Commission charges accusing it of audit failures. The monetary settlement, along with the $140M penalty that audit client Weatherford International agreed to pay separately, will go back to investors who were hurt in the accounting fraud.

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The U.S. Supreme Court has issued a unanimous ruling allowing investors to sue Bank of America Corp’s Merrill Lynch (BAC) and other brokerage firms in New Jersey state court even though the lawsuit cites federal laws. The plaintiffs, who are Spectrum Group International Inc. investors, claim that they sustained investment losses because the brokers engaged in illegal short-selling. They are invoking NJ’s RICO statute in their case. RICO is the Racketeer Influenced and Corrupt Organizations Act. It is a federal law that allows for victims of organized crime to seek civil damages. It also provides provisions for other extended penalties. Bank of America Merrill Lynch claims that this naked short selling case is meritless.

The plaintiffs are accusing Merrill Lynch and other broker-dealers of playing a part in causing Spectrum’s market capitalization to drop by $800M in 11 months. The investors said that the firms did this by helping naked short sellers who bet against the company, causing its share price to plunge.

Naked Short Sales
A short sale involves the use of borrowed shares to bet that a security’s price with drop. The short sale is naked if the trader doesn’t borrow the shares required to make the transaction happen. Under Regulation SHO, naked short sales cannot be used to manipulate a security. Still, lawsuits over illegal naked short selling haven’t done too well in federal court.

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The state of Virginia has arrived at a $63M settlement with 11 banks to resolve claims that they bilked the state’s retirement system by purportedly misrepresenting the quality of residential mortgage-backed securities in the run up to the 2008 financial crisis. The resolution settles all claims against the financial firms accused of causing financial harm to the Virginia Retirement system and its taxpayers and pensioners.

The banks involved will pay the following amounts respectively to settle, including:

· UBS Securities for $850K
· Bank of America’s Merrill Lynch, Pierce, Fenner & Smith, Inc. and Countrywide Securities Corp. (BAC) for $19.5M
· Credit Suisse Securities (CS) for $1.2M
· RBS Securities (RBS) for $10M
· HSBC Securities (HSBC) For $2.5M
· Barclays Capital (BARC) for $9M
· Goldman Sachs & Co. (GS) for $2.9M
· Morgan Stanley & Co. (MS) for $6.9M
· Citigroup Global Markets (C) for $4.8M
· Deutsche Bank Securities (DB) for $5.6M

The state lost $383M over RMBS it purchased from 2004 to before 2010 and it had to sell most of these securities, which were toxic and constructed on junk mortgages. The settlement is the largest non-healthcare related financial recovery in a case involving Virginia Fraud Against Taxpayers Act-related violations. However, according to the state’s Attorney General Mark Herring, even though the firm is settling it is not denying or admitting liability.

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Gary Yin, an ex-Bank of America Merrill Lynch (BAC) broker, must pay $1.4M in restitution for helping a client launder money made from insider trading. Yin admitted to helping former Qualcomm Inc. president Jing Wang conceal hundreds of thousands of dollars made in insider trading in that company and another company.

Yin set up brokerage accounts in the British Virgin Islands using a shell company to hide the scam and helped Wang transfer $525,000 to the shell account. He also transported documents to Wang’s brother in China to allegedly help hide the scheme from the FBI.

Now Yin must forfeit $27,000 in profits he made from trades in Qualcomm stock that were set up in a Merrill broker account in his mother-in-law’s name in the British Virgin Islands. He must also pay a $5,000 fine

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A Financial Industry Regulatory Authority panel arbitration panel says that Morgan Stanley (MS) must pay at least $2.4M to settle the latest client claims accusing its former broker, Steven Mark Wyatt, of mishandling their investments. The brokerage firm fired Wyatt in 2012.

According to a group of doctors and their loved ones, Wyatt, who was their broker, made unauthorized and excessive trades in the stock market that cost them during and after the 2008 financial crisis. Wyatt bought thinly-traded stocks for the investors and placed speculative bets on exchange-traded funds and other securities in their portfolios.

This is the latest batch of claims against Wyatt, Morgan Stanley, and managers at the Mississippi branch where he worked. The claimants believe that Morgan Stanley failed to detect warning signs of Wyatt’s purported wrongdoing. Other employees named in this securities case are adviser Hilary Zimmerman, currently a Morgan Stanley senior vice president, and branch manager Fred Eugene Brister III. The claimants contend that Brister failed to properly supervise Zimmerman and Wyatt. They say that their accounts were mismanaged and suspect trading occurred.

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Thomas J. Buck, the money manager who was let go from Merrill Lynch (MER) earlier this year, is the subject of several investor complaints alleging misrepresentation, unauthorized trading, and other wrongdoing. The cases could impact his new position at RBC Wealth Management.

The Financial Industry Regulatory Authority says there have been five complaints against the high-profile broker, who was fired from Merrill Lynch after more than three decades with the broker-dealer. The firm cited “loss of confidence” and a number of compliance lapses as reasons for the termination.

One investor is claiming losses caused by allegedly excessive trading and unsuitable investment recommendations. The investor is asking for $125K in damages. Four other claims are still pending.

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The SEC said that Merrill Lynch (MER) would pay $11 million to resolve allegations of short-selling-related noncompliance. The regulator said that the wirehouse executed short sales in certain securities when the supply for this type of transaction was restricted.

Customers frequently ask brokerage firms to “locate” stock that can be used for short selling. The financial firms generate easy-to-borrow lists made up of the stock they believe is accessible for such locates. However, contends the SEC, from January 2008 through January 2014 Merrill used information that was dated to create these ETB lists.

For example, there were times when certain securities that were placed on the ETB list in the morning were no longer as easily available for borrowing later in the trading day. Yet Merrill’s platforms were set up so that they continued to process short sale orders according to the now-dated list—even as firm personnel appropriately stopped using the list for sourcing locates when certain shares’ availability had become restricted.

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