As a result of a widespread multi-state investigation which began in May 2008, Merrill Lynch Pierce, Pierce, Fenner & Smith Inc. has agreed to pay more than $26 million to settle claims that certain client representatives were not properly licensed in states where sales efforts were undertaken. The investigation, coordinated by the North American Securities Administrators Association (NASAA), discovered that 60 percent of the firm’s “client associates” were registered only in their home state, or in only one additional state.
States require that persons at securities firms involved in sales to client or prospective clients must be licensed in the states in which the persons contacted reside – with some de minibus exceptions. Although the Merrill Lynch associates were assisting the firm’s financial advisors, they were undertaking duties which required state licenses.
While states issue licenses based on a single multi-state examination, each also charges an annual fee for each representative of a firm licensed in that state. A financial advisor with a brokerage firm may have clients or prospective clients in a number, or even dozens, of states. If an advisor’s assistant is communicating with those clients or prospects in a sales capacity, he or she must be licensed in and a fee must be paid to each state as well.
it was reported by a NASAA’s working group that the $26 million will be paid by Merrill Lynch for fines, penalties and sanctions and will be shared by the 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The firm has also agreed to implement a new internal system to ensure registration compliance in the future.
Merrill Lynch Pierce, Fenner & Smith Inc. was acquired by the Bank of America last year and is now a wholly owned subsidiary of that Bank. Both firms had been provided with billions of dollars in federal “bail-out” funds, and the acquisition has since been the subject of news stories, litigation and Congressional inquiry.