Bank of America’s Merrill Lynch brokerage unit agreed to pay $1 million for supervisory failures that allowed a former broker to use a Merrill Lynch account to run a Ponzi scheme, FINRA said on Tuesday.
The Financial Industry Regulatory Authority (“FINRA”), which oversees the U.S. brokerage industry, found that the brokerage failed to have an adequate supervisory system to monitor employee accounts for potential misconduct.
The wayward broker, Bruce Hammonds, has been sentenced to 57 months in federal prison for convincing 11 people to invest more than $1 million in a Ponzi scheme he ran as a Merrill branch representative in San Antonio, Texas.
Hammonds ran his scheme for 10 months out of the Merrill Lynch, Pierce, Fenner & Smith Inc unit in Texas. He has been barred since December 2009, FINRA said.
Merrill Lynch supervisors reportedly approved Hammonds’ request to open a business account as B&J Partnership, the name under which he also ran the Ponzi scheme. He told Merrill supervisors that he was funding the account through proceeds from a house-flipping business, according to the settlement.
Hammonds told investors that B&J was affiliated with Merrill and promised returns between 30 percent and 100 percent, according to the settlement. In reality, B&J was reportedly nothing more than a Ponzi scheme. A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.
Investors who believe they may have been a victim of “selling away” or a Ponzi scheme may contact the Law Office of Christopher J. Gray, P.C. for a confidential, no-cost consultation.