FINRA has informed the public that it has fined Merrill Lynch, Pierce, Fenner & Smith Inc. for improperly selling shares in initial public offerings (IPOs) to industry insiders. Merrill Lynch will pay a $5.5 million fine, and disgorge $490,530 it earned as revenue from the sales.
IPOs included Facebook, Inc. (NASDAQ:FB), General Motors Co. (NYSE:GM), LinkedIn Corp. (NYSE:LNKD), and Twitter Inc (NYSE:TWTR).
Merrill Lynch failed to implement supervisory systems and procedures reasonably designed to achieve compliance with the FINRA rule prohibiting IPO sales to industry insiders. The company has also failed to use information in its own customer records to prevent the sale of IPO shares to clients who were restricted persons; didn’t respond reasonably when it learned that it had sold IPO shares to immediate family members of Merrill Lynch financial advisors.
IPO shares sold to industry insiders are unavailable to investors who might otherwise have purchased them,” said Susan Schroeder, FINRA Executive Vice President, Department of Enforcement. “FINRA rules play an important role in preserving the fairness of the IPO process and protecting investors’ access to IPOs. Merrill Lynch knew or should have known that these customers were restricted from IPO purchases, but repeatedly sold them shares in violation of FINRA rules.
In settling this matter, Merrill Lynch neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.