FINRA Makes Merrill Lynch's Ponzi Oversight Punishment Fit The Crime

Tuesday, October 04, 2011 22:43
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FINRA Makes Merrill Lynch's Ponzi Oversight Punishment Fit The Crime

Brokerage firms that break the rules often rake in millions of dollars before the regulators assess a token fine. This time around, Merrill Lynch has to pay roughly what one of its brokers misappropriated from clients.

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Bruce Hammonds diverted about $1 million in client funds into a personal Ponzi scheme when he was working in Merrill's San Antonio office back in 2008.

 

He's since been sent to jail and banned from the industry. But now, FINRA has turned to Merrill Lynch for failing to supervise him -- and monitor thousands of other accounts -- well enough to catch the scheme earlier.

 

Merrill will have to pay $1 million for not watching Hammonds better.

 

The loophole that he exploited was Merrill's account supervision system, which only looked at accounts tagged with the client's Social Security number.

 

No SSN meant that the details had to be entered manually and the firm largely had to take the account creator's word for where the money came from.

 

Since Hammonds was running the scheme under the guise of a bogus house-flipping partnership, he set up the accounts in question himself and then moved the money around at will.

 

Apparently up to 40,000 Merrill accounts are vulnerable to that kind of manipulation.

 

 

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