Published on:

Massachusetts Secretary of State Fines Merrill Lynch $500,000 for “Failure to Supervise” a Broker Involved in Fraud

Merrill Lynch Pierce Fenner & Smith Inc (“Merrill Lynch”) was fined $500,000 by Massachusetts securities regulators for failing to stop one if its brokers, Jane E. O’Brien, from defrauding clients. Ms. O’Brien, who has resigned from Merrill Lynch, had been a top producer for Merrill Lynch’s Boston office, bringing in nearly $154 million in assets under management, and earning $903,734 in gross revenue for the firm in her first year, regulators said. Reportedly, O’Brien started borrowing from clients in 2007, and by 2011 had borrowed approximately $2.2 million. In one instance, she used money a client intended to invest in a software company for her own personal expenses. It was not until O’Brien’s retirement accounts were nearly empty that Merrill Lynch noticed that she might be having financial difficulties. Specifically, regulators said that, O’Brien prematurely removed $380,750 from her own retirement account at Merrill Lynch, and that those withdrawals, which incurred tax penalties, could have signaled that she was in financial trouble. However, Merrill Lynch reportedly did not inform the Massachusetts securities regulators about reviewing her conduct until six days after she was indicted by the Justice Department, the regulators said. William F. Galvin, Secretary of the Commonwealth of Massachusetts, charged Merrill Lynch with failure to supervise for failing to notice patterns of behavior by a financial adviser that suggested she was in financial trouble.

William F. Galvin gave the following statement: “By the time she was questioned about her financial withdrawals, she had already borrowed money from her clients…This in my estimation is yet another example of top producers often being held to a different standard because of the revenue they bring into the firm.”

A spokesman for Merrill Lynch’s parent company, Bank of America Corp. stated, “When we became aware of the matter two years ago, and began investigating, the financial adviser resigned.”

O’Brien pleaded guilty to fraud last year and was barred from the securities industry. This past May, she was sentenced to 33 months in federal prison and ordered to pay $240,000 in restitution.

Merrill Lynch agreed to the $500,000 fine for its “failure to supervise,” but did not admit to violating the law.

Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters and securities-related and commercial litigation. Additionally, Lax & Neville has extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses, including losses in variable universal life insurance products. Lax & Neville also has extensive experience in successfully prosecuting claims against Merrill Lynch. Please contact our team of attorneys for a consultation at (212) 696-1999.

Contact Information