by Brian Mahany
Brokerage giant Merrill Lynch was fined $1 million by the Financial Industry Regulatory Authority (FINRA) for failing to supervise one of its stockbrokers. That broker, Bruce Hammonds, defrauded investors out of over $1 million through a Ponzi scheme he conducted while working at Merrill Lynch. In addition to the fine, Merrill will likely be forced to make good the fraud losses suffered by Hammonds customers.
Failure to supervise is a significant problem faced by brokers. Although it is more prevalent in small one or two person offices and branches, it can happen anywhere. Many brokerage firms record telephone calls with customers (we are all familiar with that friendly recorded voice that tells us “calls may be monitored or recorded for quality assurance purposes.) Firms also review incoming and outgoing correspondence and prohibit brokers from using private email accounts at work.
Although Merrill Lynch did not admit any wrongdoing, it did say it was improving its monitoring and oversight. Brokerage firms that don’t monitor their employees’ activities face the risk of fines from regulators and significant financial losses. In the case of Merrill Lynch, the firm can likely be made to pay for any losses suffered by customers since Hammond was acting in the apparent scope of his authority.
What does “apparent authority” mean? If I buy a car from my stockbroker and its a lemon, its hard to sue the broker’s employer. Stockbrokers sell investments, not automobiles. But if my broker pockets my money and flees after I purchase an annuity, the employer is likely on the hook since selling annuities are a common activity for brokers.
Brokerage firms have another reason to properly supervise their employees – take one look at the recent $2 billion trading loss caused by a “rogue” trader at UBS.
The industry is constantly looking to improve its internal monitoring to make sure their investment advisors and stockbrokers aren’t crossing the line. But short of monitoring every call and following their employees around the clock, it’s impossible.
Although having a broker create his own Ponzi scheme and market it from work, financial advisers frequently stretch the truth in their sales pitches. To recover your money if their predictions or promises turn out to be false, investors should keep good notes of their conversations, ask for promises or projections in writing and save emails. If you get an email from your broker’s personal account, be especially suspicious. In most every firm that’s a big red flag.
If you have lost money in an investment fraud, contact a lawyer that concentrates in fraud recovery. Our securities fraud attorneys at Mahany & Ertl have helped many people get back their hard earned money. Don’t be a victim – fight back. Many times cases can be handled through arbitration and legal fees charged on a contingent fee basis meaning we get no money unless you win. For a no obligation consultation, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at
Mahany & Ertl, LLC – America’s Fraud Lawyers. Offices in Milwaukee, Detroit & Portland. Legal services available in most states.