FINRA reported in a news release that it fined Merrill Lynch, Pierce, Fenner & Smith Inc. (CRD# 7691) $6.25 million and the firm will pay approximately $780,000 in restitution for inadequately supervising its customers’ use of leverage and overconcentrating some of its customers in Puerto Rican bonds.
According to the Acceptance, Waiver & Consent (“AWC”) entered into between Merrill Lynch and FINRA, FINRA found that from January 2010 through July 2013, Merrill Lynch did not establish and maintain adequate supervisory systems and did not establish, maintain, and enforce adequate written procedures reasonable designed to ensure the suitability of transactions in certain Puerto Rico securities, namely, municipal bonds and closed-end funds. Certain customers’ holdings were highly concentrated in Puerto Rican bonds and highly leveraged through margin.
This is not the first time a firm has been sanctioned for supervisory, concentration and margin issues related to Puerto Rican securities, municipal bonds and/or closed-end funds. In September 2015, FINRA fined UBS Financial Services Inc. (CRD# 8174) of Puerto Rico a total of $18.5 million in fines and restitution for similar allegations.
Many brokers and brokerage firms invested their clients in Puerto Rican bonds, oftentimes in security instruments called closed-end funds. Not only did some invest, they overconcentrated customers’ money in these closed-end funds. These closed-end funds were composed of numerous Puerto Rican municipal bonds. The closed-end funds then were placed in their own market, trading between customers and firms.
The Puerto Rican economy has shown signs of instability for a good part of the last ten years, but when the writing on the wall became more clear in 2012, the closed-end funds were essentially illiquid. Now, investors who have their money invested in Puerto Rican municipal bonds face nonpayment as Puerto Rico defaults and warns of future defaults.
For aggrieved investors, though, brokers and brokerage firms are required to recommend suitable investments and abide by other securities rules. In some cases with the closed-end funds and Puerto Rican bonds, these brokers and brokerage firms have failed to make reasonable recommendations among other forms of misconduct.
Our firm has handled many cases dealing with Puerto Rican municipal bonds and closed-end funds. We have collectively recovered millions of dollars for aggrieved investors in those cases. Allows us to try and get your investment losses back due to broker and brokerage firm misconduct.
If you have invested with Merrill Lynch, Pierce, Fenner & Smith or UBS Financial Services and have lost money investing in Puerto Rican municipal bonds and closed-end funds, you may be able to recover some or all of your losses. Our lawyers are experienced in recovering investor losses due to broker and brokerage firm misconduct through FINRA arbitration.
Silver Law Group represents the interests of investors who have been the victims of investment fraud. If you have questions about your legal rights, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or toll free at (800) 975-4345.