SEC Charges Merrill Lynch with Gatekeeping Failures in Unregistered Securities Sales
The Securities and Exchange Commission has settled charges against Merrill Lynch, Pierce, Fenner & Smith Inc. for its failure to perform required gatekeeping functions in the unregistered sales of securities on behalf of a China-based issuer and its affiliates.
The Securities and Exchange Commission has settled charges against Merrill Lynch, Pierce, Fenner & Smith Inc. for its failure to perform required gatekeeping functions in the unregistered sales of securities on behalf of a China-based issuer and its affiliates.
The SEC’s order found that Merrill Lynch sold almost 3 million shares of Longtop Financial Technological Limited’s securities into the market despite red flags indicating that the sales could be part of an unlawful unregistered distribution. Ultimately, the distribution generated almost $38 million in proceeds for the overseas issuer and its affiliates.
“Broker-dealers are important gatekeepers,” said Antonia Chion, associate director of the SEC’s division of enforcement. “A broker-dealer has a duty to conduct a reasonable inquiry and know its customers before effecting unregistered sales of securities.”
Merrill Lynch is accused of violating Sections 5(a) and 5(c) of the Securities Act of 1933. Without admitting or denying the findings, the broker-dealer agreed to a censure, a cease and desist, and will pay a $1.25 million penalty and $154,000 in disgorgement and prejudgment interest from commissions and fees earned on the improper sales. The SEC has revoked the registration of Longtop’s securities.
