Merrill Lynch and Wells Fargo Advisors have been ordered by the Financial Industry Regulatory Authority (FINRA) to repay a total of US$3.1 million and were collectively fined US$2.2 million for selling mutual funds of floating-rate bank loans during the credit crisis.
The mutual funds sold were not suitable for Merrill Lynch and Wells Fargo Advisors clients, according to FINRA.
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Merrill Lynch will pay a US$900,000 fine and reimburse US$1.1 million in losses to 214 clients, whereas Wells Fargo Advisors will pay a fine of US$1.25 million and reimburse US$2 million in losses to 239 clients.
FINRA said broker-dealers that were predecessors of both Wells Fargo Advisors and Merrill Lynch in 2007 and 2008 also did not adequately supervise the brokers who sold the floating-rate funds.
Wells Fargo and Merrill Lynch have, reportedly, each consented to FINRA’s letter of acceptance, waiver and consent.
Floating-rate mutual funds, also known as bank loan funds, senior loan funds and leveraged-loan funds, typically invest in a portfolio of secured senior loans made to businesses with a "junk" credit rating. The funds have significant credit risks and can lack liquidity, according to FINRA.
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By GlobalDataTowards the end of May, FINRA said it is considering new rules to better monitor trading in dark pools, private venues that don’t post investors’ bids.
