A broker-dealer agreed to pay over $1.4 million to settle SEC charges of failing to adequately investigate red flags concerning the unregistered sale of securities.
In the Order, the SEC found that Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") brokered the unregistered sales of securities for a customer. The SEC stated that despite initial red flags, Merrill Lynch failed to conduct a thorough investigation as to whether the sales could be part of an unlawful unregistered distribution. In particular, the SEC found that Merrill Lynch did not adequately investigate indications that a "gift" of the shares before the eventual sale was not valid. The shares were allegedly given by the issuing company to ex-employees, but the SEC determined that the shares were actually held in a trust and sold for the benefit of the issuing company.
The SEC charged Merrill Lynch with violating Securities Act Sections 5(a) and 5(c).
Merrill Lynch made no admissions in connection with the settlement.
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