The New York Stock Exchange is fining Merrill Lynch $10 million for failing to deliver mutual fund prospectuses. Merrill failed to deliver the reports in at least 64,000 transactions for the sales of registered, open-end mutual fund securities. Merrill also failaed to deliver prospectuses in 900 transactions in 275 accounts related to auction-rate preferred stocks between January and July in 2004, NYSE charged.
The error occurred due to a change Merrill had made to its back-office systems in 2002, which the firm discovered through an internal audit and reported to Big Board in October 2004.
"The delivery problems we encountered were caused by coding problems that the firm discovered, corrected and subsequently reported to NYSE," Mark Herr, a spokesman for the Exchange, said in a statement.
But in addition to the prospectus glitch, NYSE regulators found a number of other regulatory and compliance lapses, from failing to retain e-mails to not reporting litigation and arbitration judgments.
Said NYSE Regulation Chief of Enforcement Susan L. Merrill: "Internal controls at our member firms cannot run on auto pilot but must be reviewed periodically to ensure that firms are complying with their responsibilities under federal securities laws and NYSE rules."