SEC Alert! SEC Charges Merrill Lynch and Parent Company for Failing to File Suspicious Activity Reports. From January 2009 to November 2019, Merrill failed to file hundreds of SARs on no-suspect criminal activity involving Merrill customers.
https://www.sec.gov/litigation/admin/2023/34-97872.pdf
Wut mean?
- Between January 2009 and November 2019, Merrill didn't file certain Suspicious Activity Reports (SARs) as required by law. These reports are important because they help detect potential illegal activities, like money laundering or fraud, within financial transactions.
- Merrill was supposed to file these reports for any transactions that were at least $5,000 and seemed suspicious, like if they thought the transactions were being used to facilitate criminal activity. However, Bank of America's subsidiary, BACNAH, which was responsible for filing these reports for Merrill, used a threshold of $25,000 instead of the required $5,000 for certain types of suspicious activities where they couldn't identify a suspect.
- This higher threshold meant that they didn't file hundreds of SARs for activities like unauthorized debit card withdrawals, forged checks, identity theft, and internet scams. Because they didn't file these reports, Merrill violated the rules set by the Exchange Act, and BACNAH was responsible for causing these violations.
MERRILL’S FAILURE TO FILE SARS:
Wut mean?
- Merrill, is obligated by the Financial Crimes Enforcement Network (FinCEN) rules to file Suspicious Activity Reports (SARs) on certain suspicious transactions. BACNAH, a subsidiary of Bank of America, is responsible for creating policies and filing SARs for Merrill.
- The rules require Merrill to file SARs on suspicious transactions that meet or exceed certain dollar thresholds. For broker-dealers like Merrill, the threshold is $5,000, no matter the nature of the suspicious activity.
- However, after Bank of America acquired Merrill in 2009, BACNAH’s Fraud Investigations Group took over the responsibility of detecting, investigating, and filing SARs for Merrill. This group was already responsible for filing SARs for its affiliated national banks, but they were using different thresholds: $5,000 for suspect criminal activity and $25,000 for no-suspect criminal activity. They incorrectly applied these bank thresholds to Merrill transactions.
- In September 2019, an employee noticed that the Fraud Investigations Group was using the wrong threshold ($25,000 instead of $5,000) for no-suspect criminal activity at Merrill. By November 2019, the group corrected this and started using the correct $5,000 threshold.
- Because of this error, from January 2009 to November 2019, Merrill failed to file hundreds of SARs on no-suspect criminal activity, which included unauthorized debit card withdrawals, forged checks, account intrusions, identity theft, and internet scams involving Merrill customers.
Penalty?
Censure and $6 million fine
Press Release: https://www.sec.gov/news/press-release/2023-128
The Securities and Exchange Commission today announced charges against Merrill Lynch, Pierce, Fenner & Smith Incorporated and its parent company BAC North America Holding Co. (BACNAH) for failing to file hundreds of Suspicious Activity Reports (SARs) from 2009 to late 2019. Merrill Lynch agreed to pay a $6 million penalty to settle the SEC charges and, in a parallel action, Merrill Lynch agreed to pay a separate $6 million fine to settle charges brought by the Financial Industry Regulatory Authority (FINRA).
According to the SEC’s order, BACNAH assumed responsibility for creating and implementing Merrill Lynch’s SAR policies and procedures and for filing Merrill Lynch’s SARs. Over the course of a decade, however, BACNAH improperly used a $25,000 threshold instead of the required $5,000 threshold for reporting suspicious transactions or attempted transactions where a suspect may have been seeking to use Merrill Lynch to facilitate criminal activity and could not be identified. As a result, BACNAH caused Merrill Lynch’s failure to file hundreds of required SARs.
“Broker-dealers have a critical obligation to report suspicious activity in their accounts,” said Katharine E. Zoladz, Co-Acting Regional Director of the Los Angeles Regional Office. “Merrill Lynch and BACNAH did not file hundreds of Merrill Lynch SARs because they failed to comply with one of the most basic requirements for a SAR program.”
The SEC’s order finds that Merrill Lynch violated the books and records provisions of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder and that BACNAH caused those violations. Without admitting or denying the SEC’s findings, Merrill Lynch and BACNAH agreed to cease and desist from committing or causing violations of those provisions, and Merrill Lynch also agreed to a censure and the aforementioned $6 million civil penalty.
The SEC’s investigation was conducted by staff at the Los Angeles Regional Office and supervised by Finola H. Manvelian. The SEC appreciates the assistance of FINRA.
How could this impact GameStop?
- Market Manipulation: If Merrill's failure to file SARs allowed illicit activities to go unnoticed, it could potentially enable market manipulation. For instance, if a group of individuals were conducting a "pump and dump" scheme (where the price of a stock is artificially inflated, often using misleading statements, before being sold off for a profit), this could lead to volatile price swings in GameStop's stock.
- Insider Trading: If Merrill's failure to file SARs allowed insider trading to go unnoticed, this could also impact GameStop.
TLDRS:
- SEC Charges Merrill Lynch and Parent Company for Failing to File Suspicious Activity Reports.
- Because of this error, from January 2009 to November 2019, Merrill failed to file hundreds of SARs on no-suspect criminal activity, which included unauthorized debit card withdrawals, forged checks, account intrusions, identity theft, and internet scams involving Merrill customers.
- Penalty? Censure and $6 million fine
