The New Hampshire Bureau of Securities Regulation has instituted its largest monetary sanction in the Bureau’s history. In settling its case against New York-based broker-dealer Merrill Lynch and its agent Charles Kenahan, the granite state secured a settlement of $26,350,000 in fines, costs, and restitution.

Merrill Lynch was assessed a fine of $1,750,000 plus costs of$250,000 and ordered to pay restitution of $24,250,000. Kenahan was permanently barred from the securities business in New Hampshire. Additionally, the Bureau ordered Merrill Lynch to institute compliance initiatives to address the failures uncovered by its investigation.

What happened?

The Bureau says Merrill Lynch failed to supervise its advisor, Kenahan, who traded without authorization, mismarked trade confirmations, excessively traded stocks and initial public offerings, overcharged commissions, and inappropriately traded inverse and leveraged products. Kenahan’s actions delivered high commissions to himself and Merrill Lynch. But the investor finagled suffered heavy losses.

The investor and his family, high-net individuals from Rye, NH, were longtime clients of the firm and Kenahan. They came aboard in 2007 when Kenahan moved to Merrill from his previous firm. Although the investor was otherwise knowledgeable about the securities markets, he entrusted Merrill Lynch and Kenahan with several brokerage accounts of substantial value. He then permitted Merrill Lynch and Kenahan to recommend and execute investment strategies and securities utilized in the family’s accounts.

Investing in unfollowed stocks

Among Kenahan’s initial recommendations was investing in a company called Monitise, a low-priced stock unfollowed by Merrill Lynch research. And then, he repeated this investment process across multiple accounts held by the investor. The strategy cost the New Hampshire investor millions of dollars.

In January 2019, the investor complained to the New Hampshire Bureau. Kenahan was terminated in July 2019, and the investor moved his accounts away from Merrill Lynch. The Bureau stepped in.

“This case is about an abuse of trust committed by Merrill Lynch and Kenahan,” says Jeff Spill, Deputy Director and head of enforcement for the Bureau. The investor trusted Merrill Lynch and Kenahan to give him good advice and act in good faith. Ultimately, Kenahan’s recommendations benefited Kenahan and Merrill Lynch and not the investor.

According to Brian Linares, a staff attorney who also worked on the case, the issue is a breach of trust. “Investors should be able to trust and have full faith in their financial advisors, and Merrill Lynch and Kenahan broke that trust. Merrill Lynch and Kenahan are being held accountable for their actions.”

Compliance would have been so much less costly

And that’s where Patrina could have helped because size is irrelevant when bad actors are acting badly.

For more than 25 years, Patrina has been helping compliance professionals like you stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective, designated third-party services, comprehensive, 8-module compliance solution, compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered. Let’s talk.