Tuesday, June 17, 2014

Merrill Lynch Fined $8 Million for Mutual Fund Overcharges

Merrill Lynch, Pierce, Fenner & Smith, Inc. was fined $8 million for failing to waive mutual fund sales charges for certain charities and retirement accounts by FINRA. FINRA also ordered Merrill Lynch to pay $24.4 million in restitution to affected customers, n addition to $64.8 million the firm has already repaid to harmed investors.

Mutual funds offer several classes of shares, each with different sales charges and fees. Typically, Class A shares have lower fees than Class B and C shares, but charge customers an initial sales charge. Many mutual funds waive their upfront sales charges for retirement accounts and some waive these charges for charities.

According to the press release, most of the mutual funds available on Merrill Lynch’s retail platform offered such waivers to retirement plan accounts and disclosed those waivers in their prospectuses. However, at various times since at least January 2006, Merrill Lynch did not waive the sales charges for affected customers when it offered Class A shares. As a result, approximately 41,000 small business retirement plans, and approximately 6,800 charities and 403(b) retirement plan accounts available to ministers and employees of public schools, either paid sales charges when purchasing Class A shares, or purchased other share classes that unnecessarily subjected them to higher ongoing fees and expenses. Merrill Lynch learned in 2006 that its small business retirement plan customers were overpaying, but continued to sell them more costly shares and failed to report the issue to FINRA for more than five years.

For more information - FINRA Fines Merrill Lynch $8 Million; Over $89 Million Repaid to Retirement Accounts and Charities Overcharged for Mutual Funds


The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and representation of investors, financial professionals and investment firms, nationwide in litigation and FINRA arbitration proceedings. For more information call 212-509-6544 or send an email.

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