Merrill Lynch to Pay $26.25 million to settle “churning” allegations

Merrill Lynch to Pay $26.25 million to settle “churning” allegations

New Hampshire orders Merrill Lynch to pay fines and refunds of $ 26.25 million to the state and an investor, the former New Hampshire governor, who claimed he had losses through a former Boston broker suffered to clarify allegations including unauthorized and excessive trading.

It’s the largest monetary sanction in the state’s history and the second-largest FINRA settlement in at least a decade.

Merrill Lynch, a subsidiary of Bank of America, was also cited for lack of supervision and directed to comply with compliance obligations specifically introduced to address the compliance deficiencies uncovered by the New Hampshire investigation.

Regardless, the state securities commission has permanently banned former Merrill Lynch broker Charles Kenahan from the New Hampshire securities business.

The state’s investigation found that Kenahan “traded unauthorized, mismarked trade confirmations, traded over-traded stocks and IPOs, over-traded commissions and inappropriately traded inverse and leveraged products,” according to Monday’s press release.

According to the state regulator, the misconduct “resulted in high commissions for Merrill Lynch and Kenahan and high losses for the investor”.

“This case is about an abuse of trust committed by Merrill Lynch and Kenahan,” said Jeff Spill, assistant director and enforcement officer for the New Hampshire Bureau of Securities Regulation. “Ultimately, Kenahan’s recommendations were for Kenahan and Merrill Lynch, and not for the investor,” said Spill.

“We have improved our policies and monitoring systems over the past few years to more closely monitor certain types of customer account activity,” a Merrill Lynch spokesperson said in an email to CNBC.

CNBC first reported in July that New Hampshire state authorities were investigating Boston-based Merrill Lynch and at least one former top broker over customer complaints about alleged wrongdoing that resulted in staggering losses. At this point, the state regulator had reached out to Merrill Lynch with its findings, and settlement discussions were under way.

Craig Benson, the former New Hampshire Governor, in a boardroom interview with CNBC’s Scott Cohn in December 2019.


Under the settlement terms, the state will receive $ 2 million while “Investor # 1” will receive $ 24.25 million.

“Investor # 1” is Craig Benson, the former governor of New Hampshire, according to sources familiar with the settlement that could not be identified due to the nature of the nondisclosure agreement.

Benson’s attorney declined to comment, saying, “The parties to the settlement agreement cannot comment on the settlement.”

Craig Benson, the former New Hampshire Governor, in a boardroom interview with CNBC’s Scott Cohn in December 2019.


In CNBC’s original investigation, Benson said he alerted the state securities commission after filing a FINRA arbitration against Merrill Lynch and two of the company’s former brokers, Kenahan and Dermod Cavanaugh. The allegations included excessive trading, unauthorized trading, excessive commissions, lack of supervision and breach of fiduciary duty.

Benson claimed in his claim that the widespread wrongdoing resulted in losses of more than $ 50 million and market-adjusted losses of over $ 100 million.

“There was no way I signed a document saying it was okay to steal from me,” Benson told CNBC. “This is a fight I never chose,” he said.

Second largest FINRA settlement

The settlement with the New Hampshire securities regulators will also resolve Benson’s pending FINRA arbitration, which was filed in February 2019.

According to Craig McCann, founder and principal of the Securities Litigation and Consulting Group, FINRA’s BrokerCheck system data is the second largest $ 24.25 million settlement involving a single claimant of over 29,000 in the past decade.

The largest settlement was also reached by Merrill Lynch when the company disbursed $ 40 million to Robert Levine, who co-founded Cabletron Systems with Benson in the early 1980s. Prior to the settlement, Levine had filed a FINRA arbitration complaint against Merrill Lynch and Kenahan alleging that he had sustained more than $ 100 million in damage due to, among other things, his accounts being inexorably mixed up.

Bob Levine (L) and Craig Benson (R) co-founders of Cabletron Systems

Source: Cabletron Systems

In 2019, after the case went to a final hearing in an arbitration tribunal but before the arbitration tribunal announced its decision, Merrill Lynch decided to come to an agreement with Levine.

Kenahan was fired from Merrill Lynch in July 2019 following Levine’s final FINRA arbitration hearing. He cited “clients’ allegations of unauthorized trading, improper investment advice and excessive trading,” as his BrokerCheck report shows.

Kenahan’s attorney declined to comment. However, Kenahan’s BrokerCheck report includes his comments on the matter. That section states: “The transactions that gave rise to the allegations made by the customers were carried out at the direction of the customer. The allegations resulted in arbitration and settlement. I was not a party to the arbitration; Company to regulate that. ” Expectations; and I was not asked to make any payment under the Settlements. “

Additional coverage: Louise Connelly

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