FINRA Says Impeccable Merrill Lynch Has No Relevant Disciplinary History

May 19, 2020

There are times when FINRA seems to think that "relevant" is a large, grey pachyderm. I say that only partly in jest because Wall Street's self-regulatory-organization seems befuddled by the concept of when a member firm's prior disciplinary history should be deemed "relevant" to a current disclosure of a settled case. More disturbing is how FINRA's deeming something "relevant" seems to be affected by whether the recidivist regulatory misconduct occurred at one of its Large Member Firms versus one of the its smaller member firms or associated persons. When it comes to the industry's Big Fish, FINRA seems to adopt a cautious, solicitous attitude when tagging a Respondent firm with the attribute of having prior, relevant disciplinary history -- in contrast to what seems a more aggressive approach when tagging the industry's smaller firms or associated persons with the same description.

Case In Point

For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, FINRA member firm Merrill Lynch, Pierce Fenner & Smith Incorporated submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Merrill Lynch, Pierce Fenner & Smith Incorporated, Respondent (FINRA AWC 2018058319801)

The AWC asserts that Merrill Lynch, Pierce Fenner & Smith Incorporated has been a FINRA member firm since 1937, and has 30,000 registered representatives at 3,700 branches, and is a subsidiary of Bank of America. The AWC alleges that Merrill Lynch, Pierce Fenner & Smith Incorporated "does not have any relevant disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization." 

As set forth in pertinent part in the AWC, during the relevant period from April 2016 through the present: 

[M]errill Lynch permitted an executive with its non-FINRA member affiliate to be actively engaged in the management and supervision of FINRA-registered employees in the Firm's prime brokerage department. The individual directly supervised more than twenty-five U.S.-based prime brokerage employees, all but one of whom were registered with FINRA. The individual wrote annual performance reviews for registered employees and, relatedly, made decisions on registered persons' compensation. The individual's written comments in these performance reviews demonstrate a deep familiarity with each employee's work, at times referencing specific transactions and customers. Additionally, the individual interviewed candidates to fill open prime brokerage positions and made the final employment decision as to the hiring of certain candidates. The individual also promoted and demoted, and changed the job functions of, prime brokerage employees. 

The individual was also a voting member of pricing and commitment committees that made specific business decisions directly impacting the Firm's securities business. Additionally, the individual solicited business from Firm customers and prospective clients and approved the on-boarding of at least one customer. The individual ran weekly sales meetings of the prime brokerage sales group and played a leading role in covering several of the prime brokerage department's more important clients. 

Accordingly, Merrill Lynch allowed the individual to act as a principal of the Firm, but did not register the individual with FINRA as a principal. By virtue of the foregoing, Merrill Lynch violated NASD Rule 1021 (for conduct before October 1, 2018), FINRA Rule 1220 (for conduct on and after that date) and FINRA Rule 2010

In accordance with the terms of the AWC, FINRA found that Merrill Lynch, Pierce Fenner & Smith Incorporated had violated NASD Rule 1021, and  FINRA Rules 1220 and 2010; and the self regulator imposed upon the firm a Censure and a $150,000 fine. The firm undertakes to certify in pertinent part that" (a) the individual referred to in this AWC is not actively engaged in the management of the Firm's securities business, or (b) if the individual is, the individual has obtained the requisite registrations." 

Bill Singer's Comment

I can barely contain my outrage when I note that FINRA published the above-AWC with the jaw-dropping assertion that:


Respondent does not have any relevant disciplinary history with the Securities and Exchange Commission, any state securities regulators, FINRA, or any other self-regulatory organization

As disclosed on FINRA's online BrokerCheck record for Merrill Lynch, Pierce, Fenner & Smith Incorporated as of May 15, 2020 at, under the heading "Disclosure Events" we are informed that there are 
  • Regulatory Event: 567 "Final" 
  • Civil Event: 1 "Pending" and 4 "Final"
  • Arbitration : 873 "Final"

Just given the sheer magnitude of 567 Final Regulatory Events, is it likely -- is it possible -- that Merrill Lynch has no relevant disciplinary history?


No RELEVANT disciplinary history?  

And who at FINRA determined that any extant disciplinary history was not "relevant"?

Consider some of these purportedly NOT relevant prior disciplinary histories:

For a number of years, I have chided, cajoled, and chastised FINRA for its woefully inconsistent approach to the issue of disclosing disciplinary histories. Beyond the simple act of disclosure, FINRA  has exacerbated the issue by resorting to such inconsistent characterizations as mere "prior disciplinary history," versus "relevant disciplinary history," versus "relevant formal disciplinary history" versus the inclusion or exclusion of specific prior disciplinary history at the SEC or with a state regulator or with any other regulator. For example, see: 

FINRA's Foolish Inconsistency ( Blog / June 9, 2017)

Nor is the "relevancy" issue one solely limited to Merrill Lynch or of recent vintage:

All Voya FINRA AWCs Are Not Relevant Except When They Are ( Blog /  April 24, 2019)

FINRA Disciplinary Settlement Raises Relevancy Of Any ( Blog /  July 10, 2017)

FINRA Says Impeccable Merrill Lynch Has No Relevant Disciplinary History
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