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Merrill Lynch Fined Over Alleged Supervisory Failures

By Alex Padalka December 18, 2018

Wirehouse Merrill Lynch is on the hook for $300,000 over alleged failures to supervise a former representative who began a scheme to defraud one of the firm’s clients while employed by the wirehouse, Finra says.

Merrill Lynch allegedly failed to supervise a representative identified by the initials “EW” from February 2010 to June 2010, according to a letter of acceptance, waiver and consent published by the industry’s self-regulator.

But during that short time, EW, along with a third party Finra identifies as “MS,” began a scheme targeting a wealthy professional athlete, Finra says. The scheme would eventually end with EW and MS getting arrested by criminal authorities for allegedly misappropriating millions of dollars, according to the regulator.

The wirehouse, however, allegedly had several opportunities to prevent further fraud during EW’s short time with the firm, Finra says. EW was registered with three Finra member firms from 1988 to 2004, after which she left the industry to work for MS’s real estate development practice, according to the consent letter.

MS, meanwhile, had a criminal history and in March 2009 made the papers in Miami in articles alleging bribery and other fraud, Finra says.

When she joined Merrill Lynch in 2010 as an investment associate, EW allegedly failed to mention her work with MS’s company, telling the firm that her last employment had been with another Finra member six years prior, according to the regulator.

During her time at the wirehouse, Merrill Lynch allegedly failed to reasonably investigate some of EW’s emails the firm itself allegedly flagged for review, Finra says.

In addition, Merrill Lynch failed to do further analysis of a $1.7 million default judgment against EW arising from a civil claim alleging that she had fleeced a couple who had lent MS money, according to the regulator.


Finra asserts the wirehouse would have been made aware of EW’s ties to MS and would have been better prepared to assess the risk EW posed for the firm’s affluent professional athlete client, the regulator says.

Merrill Lynch, which in addition to the fine agreed to a censure, consented to Finra’s order without admitting or denying its findings, according to the letter.