Shares of Bank of America Corporation BAC declined nearly 3% after Massachusetts imposed a penalty of $2.5 million on Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch), a wholly owned subsidiary of the former. Merrill Lynch was fined for failure to act in accordance with its own compliance rules while giving internal presentations in 2013.
According to Merrill Lynch’s policy, the presentations by its Optimal Practice Model team should have been reviewed by the internal compliance staff prior to being shown to over 300 employees including financial advisors and executives.
However, Merrill Lynch failed to do so and made the unapproved presentations in Jan 2013 in Boston as alleged by Massachusetts Secretary of the Commonwealth William Galvin. This led the state's top securities regulator to fine Merrill Lynch as stated in the consent order released on Monday.
Merrill Lynch made the presentations in order to give useful financial information to its advisors in order to assist them in obtaining more business. During the presentations, the firm provided guidance regarding client relocation from commission-based brokerage accounts to fiduciary fee-based accounts. However, the firm committed a violation by not including disclaimers about client suitability in case of such transfers.
Though the presentations were only for internal use and not shown to clients and investors, the Massachusetts Securities Division considered this negligence as an indirect risk for customers in case of misinterpretation by the advisors and thus fined Merrill Lynch. This will result in the firm being cautious in the future and upgrade its compliance procedures.
Litigations and settlements have become an integral part of BofA. Recently, the Wall Street giant’s plea to dismiss the lawsuit filed by the Cook County, IL was rejected by the U.S. District Judge Elaine Bucklo in Chicago. The lawsuit accuses BofA of discriminatory lending practices toward minority borrowers. (Read more: BofA to Face Cook County Discrimination Lending Case)
Along with BofA, several other major banks including JPMorgan Chase & Co. JPM, Citigroup Inc. C and Wells Fargo & Co. WFC had been sued over similar charges by cities such as Los Angeles, Baltimore and Miami, among others.
Currently, BofA holds a Zacks Rank #4 (Sell).
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