FINRA is fining Merrill Lynch $6 million after 120 of its advisors allegedly sold IPOs to family members and brokers at other firms, according to the regulator.
Over an eight-year period ending earlier this year, advisors from across 79 Merrill branches made at least 1,462 IPO sales to restricted individuals, according to the judgment. Some of the sales included highly anticipated stocks, such as Facebook, General Motors, LinkedIn and Twitter.
Merrill Lynch did not admit to or deny the findings, according to the judgment.
“We have enhanced our policies and procedures to properly identify clients who are ineligible to receive IPO shares and to prevent similar conduct in the future,” a spokesman at Merrill Lynch said.
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The firm is led by ex-wirehouse executives aiming to recruit large wirehouse teams.
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The new hires came at the expense of Merrill Lynch, Morgan Stanley, UBS and Hilliard Lyons.
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It’s the second big hiring announcement by the regional BD within the past week.
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FINRA determined that Merrill Lynch did not implement procedures to prevent the sales or respond properly after learning about them, according to the judgment.
“Merrill Lynch knew or should have known that these customers were restricted from IPO purchases, but repeatedly sold them shares in violation of FINRA rules,” Susan Schroeder, executive vice president of the department of enforcement at FINRA, said in a statement.
After an internal review in 2013, the wirehouse became aware of at least 272 improper sales, according to the judgment. Still, the firm continued selling IPO shares to some of the same accounts it had flagged.
Merrill Lynch did not provide any training on the FINRA rule prohibiting the sales until September 2014 according to FINRA. Once it was offered, “[Merrill Lynch] did not offer training to many key employees who were integrally involved in effecting IPO transactions,” according to the regulator.
While the wirehouse did require clients to certify they were eligible to purchase new issues, the firm’s system for tracking and verifying the eligibility was insufficient, according to FINRA.
The firm will pay a $5.5 million fine and repay $490,530 in revenue earned from the IPO sale violations, plus interest.
