The New Hampshire Bureau of Securities Regulation is reportedly investigating Merrill Lynch and Charles Kenahan, one of its top-producing brokers, over customer complaints alleging “churning” in their accounts that resulted in damages of approximately $200 million. Churning, or excessive trading, occurs when a broker or financial advisor trades securities in a customer’s account at high frequency in order to generate commissions rather than advance the customer’s best interests. According to multiple sources familiar with the New Hampshire securities regulator’s investigation, the churning claims that alerted the regulator stem from two arbitrations filed before the Financial Industry Regulatory Authority (“FINRA”), one by former New Hampshire Governor Craig Benson and the other from Benson’s long-time friend and business partner, Robert Levine.
According to CNBC, which obtained documents from the FINRA arbitrations, Benson’s claim, currently pending before FINRA, names Merrill Lynch, Kenahan, and another Merrill Lynch advisor Dermod Cavanaugh and alleges damages in excess of $100 million due to churning and unauthorized trading. Levine’s arbitration claim sought approximately $100 million in damages based on allegations of churning, unsuitable investment recommendations and misrepresentation.
According to news outlets, Benson and Levine originally met Kenahan through Cavanaugh, who had been the accountant for Cabletron Systems – a company Levine and Benson co-founded out of Levine’s garage. Levine and Benson said they thought they could trust and that Cavanaugh and Kenahan would act in their best financial interests, so they decided to move their individual investment accounts into the care of the two men.