In re Merrill Lynch
summary
Merrill Lynch and its parent BACNAH violated securities laws by failing to file hundreds of SARs between 2009 and 2019 due to BACNAH’s improper use of a $25,000 threshold instead of the required $5,000 threshold for reporting no-suspect criminal activity, resulting in a $6 million penalty, censure, and cease-and-desist orders.
paragraph
Between January 2009 and November 2019, Merrill Lynch failed to file hundreds of Suspicious Activity Reports (SARs) as required under Exchange Act Section 17(a) and Rule 17a-8, because its parent company, BACNAH, incorrectly applied a $25,000 threshold—intended for national banks—to Merrill’s broker-dealer activities, which legally required a $5,000 threshold for all suspicious transactions involving no-suspect criminal activity such as identity theft and unauthorized debit card withdrawals. The SEC found that Merrill willfully violated books and records rules, while BACNAH caused these violations through negligent oversight of its enterprise-wide SAR program. As part of a settlement, Merrill was censured and ordered to pay a $6 million civil penalty, while both firms agreed to cease-and-desist from future violations and filed 865 past-due SARs.
narrative
Between January 2009 and November 2019, Merrill Lynch, a registered broker-dealer, failed to file hundreds of Suspicious Activity Reports (SARs) required under Exchange Act Section 17(a) and Rule 17a-8, due to its parent company BACNAH’s systemic misapplication of a $25,000 transaction threshold, which was appropriate for national banks but not for broker-dealers. BACNAH, responsible for managing Merrill’s SAR program, incorrectly applied bank-level thresholds to Merrill’s operations, leading to failures to report customer fraud including unauthorized debit card withdrawals, forged checks, account intrusions, identity theft, and phone or internet scams—all of which met or exceeded the $5,000 legal threshold for SAR filing. The SEC determined that Merrill willfully violated its obligations, while BACNAH caused the violations through negligent oversight and failure to align its policies with regulatory requirements. This misconduct followed a prior 2017 SEC order in which Merrill paid a $13 million penalty for similar SAR filing failures. As part of the 2023 settlement, Merrill was formally censured and ordered to pay a $6 million civil penalty, while both respondents agreed to cease-and-desist from future violations. To remediate, the firms filed 865 previously unreported SARs, upgraded their compliance systems, and enhanced training and monitoring protocols. The SEC emphasized that the failure to adhere to the $5,000 threshold undermined anti-money laundering safeguards and exposed customers to ongoing financial harm.
Classified broker-dealer-fraud(confidence 95%). EDGAR detection: forms Form D· recall 29% / precision 9%. detection rule →
Statutes
31 U.S.C. §371712 C.F.R. § 21.11(c)SECTIONS 15(b) AND 21C OF THE SECURITIES EXCHANGE ACTSECTIONS 15(b) AND 21C OF THE SECURITIES EXCHANGE ACTSECTION 203(e) OF THE INVESTMENT ADVISERS ACTRule 17a-8
Parties
Securities and Exchange CommissionMerrill LynchPierceFenner & Smith IncorporatedBAC North America Holding Co.
Keywords
merrillcriminal activityactivitysarsexchangecommissioncriminalno-suspect criminalthresholdsecurities exchangefilefraud investigationsinvestigations groupbacnahfile sars
Extracted insights
Dollar amounts 6
- $13.00M $13 million $10M–$100M
- $6.00M $6,000,000 $1M–$10M
- $25K $25,000 $10K–$100K
- $25K $25,000 $10K–$100K
- $5K $5,000 <$10K
- $5K $5,000 <$10K
Entities 4
- company BAC North America Holding Co.
- company bank of america corporation
- company merrill lynch, pierce, fenner & smith incorporated
- person suspicious activity reports
Triples 6
- Securities and Exchange Commission deems appropriate public administrative and cease-and-desist proceedings be instituted against Merrill Lynch, Pierce, Fenner & Smith Incorporated and BAC North America Holding Co.
- Respondents submitted Offers of Settlement
- Commission determined to accept Offers of Settlement
- Merrill failed to file Suspicious Activity Reports
- BACNAH used $25,000 threshold instead of proper $5,000 threshold
- BACNAH failed to file hundreds of SARs for Merrill
PDF
Text layers
Extracted body text (14,947c)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 97872 / July 11, 2023
INVESTMENT ADVISERS ACT OF 1940
Release No. 6342 / July 11, 2023
ADMINISTRATIVE PROCEEDING
File No. 3-21524
In the Matter of
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated; and BAC
North America Holding Co.,
Respondents.
ORDER INSTITUTING ADMINISTRATIVE
AND CEASE-AND-DESIST PROCEEDINGS
PURSUANT TO SECTIONS 15(b) AND 21C OF
THE SECURITIES EXCHANGE ACT OF 1934
AND SECTION 203(e) OF THE INVESTMENT
ADVISERS ACT OF 1940, MAKING FINDINGS,
AND IMPOSING REMEDIAL SANCTIONS AND
CEASE-AND-DESIST ORDERS
I.
The Securities and Exchange Commission (“Commission”) deems it appropriate and in the
public interest that public administrative and cease-and-desist proceedings be, and hereby are,
instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange
Act”) and Section 203(e) of the Investment Advisers Act of 1940 (“Advisers Act”) against Merrill
Lynch, Pierce, Fenner & Smith Incorporated (“Merrill”) and BAC North America Holding Co.
(“BACNAH”), collectively “Respondents.”
II.
In anticipation of the institution of these proceedings, Respondents have submitted Offers
of Settlement (the “Offers”) which the Commission has determined to accept. Solely for the
purpose of these proceedings and any other proceedings brought by or on behalf of the
Commission, or to which the Commission is a party, and without admitting or denying the findings
herein, except as to the Commission’s jurisdiction over them and the subject matter of these
proceedings, which are admitted, Respondents consent to the entry of this Order Instituting
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the
Securities Exchange Act of 1934 and Section 203(e) of the Investment Advisers Act of 1940,
Making Findings, and Imposing Remedial Sanctions and Cease-and-Desist Orders (“Order”), as
set forth below.
2
III.
On the basis of this Order and Respondents’ Offers, the Commission finds that:
A. SUMMARY
From January 2009 to November 2019, Merrill failed to file certain Suspicious Activity
Reports (“SARs”) in violation of the broker-dealer books and records provisions of Exchange Act
Section 17(a) and Rule 17a-8. Merrill, as a registered broker-dealer, was required to file SARs on
transactions conducted or attempted by, at, or through it involving or aggregating to at least $5,000
that it knew, suspected, or had reason to suspect, among other things, involved the use of Merrill to
facilitate criminal activity. BACNAH, a subsidiary of Bank of America Corporation (“BAC”) and
the parent company of Merrill, assumed responsibility for creating and implementing Merrill’s
SAR policies and procedures and filing Merrill’s SARs. During the relevant period, however,
BACNAH’s Fraud Investigations Group used a $25,000 threshold, instead of the proper $5,000
threshold, with respect to transactions or attempted transactions suspected of using Merrill to
facilitate criminal activity where there was no substantial basis for identifying a suspect responsible
for the suspected criminal activity (“no-suspect criminal activity”). The no-suspect criminal
activity concerned Merrill customers who were victims of unauthorized debit card withdrawals,
forged or altered checks, account intrusions, identity theft, and/or phone or internet scams. As a
result, during the relevant period, BACNAH failed to file hundreds of SARs for Merrill on such
activity. By failing to file the required SARs, Merrill violated the books and records provisions of
Exchange Act Section 17(a) and Rule 17a-8, and BACNAH caused Merrill’s violations of those
provisions.
B. RESPONDENTS
1. Merrill is a subsidiary of BACNAH, is headquartered in New York, New York, and
is dually-registered with the Commission as a broker-dealer and investment adviser. In December
2017, the Commission found that Merrill failed to file SARs on the suspicious movement of funds
by its customers in violation of Exchange Act Section 17(a) and Rule 17a-8, censured it, and
ordered it to cease and desist from future violations and to pay a $13 million civil penalty. See In
Re Merrill Lynch, Pierce, Fenner & Smith Incorporated, Rel. No. 34-82382 (Dec. 21, 2017).
2. BACNAH is a subsidiary of BAC, is headquartered in Charlotte, North Carolina,
and is the parent company of Merrill and certain national banks.
C. MERRILL’S FAILURE TO FILE SARS
3. Merrill, as a registered broker-dealer, is required by rules promulgated by Financial
Crimes Enforcement Network (“FinCEN”) to file SARs on certain suspicious transactions or
attempted transactions in its accounts. BACNAH operates an enterprise-wide SAR program that is
responsible for (a) creating and implementing policies and procedures for Merrill and national
bank affiliates, and (b) filing SARs for them. Among the suspicious activity on which Merrill
must file SARs is suspected criminal activity, provided the activity meets or exceeds certain dollar
3
thresholds.
1
For broker-dealers such as Merrill, the threshold amount is $5,000, regardless of
whether the activity involves an insider at the broker-dealer or no-suspect criminal activity. 31
C.F.R. § 1023.320(a)(2). For national banks, the threshold amount is $0 if an insider at the bank is
involved, $5,000 if there is a substantial basis for identifying a suspect responsible for the
suspected criminal activity (“suspect criminal activity”), and $25,000 if activity involves no-
suspect criminal activity. 12 C.F.R. § 21.11(c).
4. After BAC acquired Merrill in January 2009, BACNAH’s Fraud Investigations
Group assumed responsibility for detecting, investigating, and filing SARs on suspected criminal
activity at Merrill that did not involve Merrill insiders, money laundering, or violations of the Bank
Secrecy Act. The Fraud Investigations Group was already responsible for filing SARs on such
activity in accounts of its affiliated national banks using the bank thresholds of $5,000 for suspect
criminal activity and $25,000 for no-suspect criminal activity. The Fraud Investigations Group
then improperly used the bank threshold amounts with respect to Merrill transactions. The Fraud
Investigations Group’s enterprise-wide written SAR policies and procedures had a $25,000
threshold for filing no-suspect criminal activity SARs, including for Merrill.
5. In about September 2019, an employee recognized that the Fraud Investigations
Group was improperly using the $25,000 threshold, and not the proper $5,000 threshold, for no-
suspect criminal activity at Merrill. In November 2019, the Fraud Investigations Group began
using the proper $5,000 threshold for no-suspect criminal activity at Merrill and began filing
Merrill SARs on such activity.
6. As a result of BACNAH’s Fraud Investigations Group using the wrong threshold
for Merrill no-suspect criminal activity from January 2009 to November 2019, Merrill failed to file
hundreds of SARs on such activity. The no-suspect criminal activity concerned Merrill customers
who were victims of unauthorized debit card withdrawals, forged or altered checks, account
intrusions, identity theft, and/or phone or internet scams.
D. VIOLATIONS
7. Exchange Act 17(a) and Rule 17a-8 requires registered broker-dealers to “comply
with the reporting, recordkeeping, and record retention requirements” of certain FinCEN rules.
Those FinCEN rules require broker-dealers to file SARs with FinCEN to report a transaction (or a
pattern of transactions of which the transaction is a part) conducted or attempted by, at, or through
the broker-dealer involving or aggregating to at least $5,000 that the broker dealer knows, suspects,
or has reason to suspect, among other things, involves use of the broker-dealer to facilitate criminal
activity. 31 C.F.R. § 1023.320(a)(2).
1
Broker-dealers and national banks are also required to file SARs on transactions or attempted
transactions that they know, suspect, or have reason to suspect involve money laundering or
violations of the Bank Secrecy Act or have no business or apparent lawful purpose. Merrill’s
failure to file SARs at issue in this proceeding did not involve such suspicious activity.
4
8. As a result of the wrong threshold being used for no-suspect criminal activity
SARs, Merrill failed to file hundreds of SARs and thereby willfully violated Exchange Act Section
17(a) and Rule 17a-8 thereunder.
2
9. Exchange Act Section 21C(a) provides liability for one who “causes” a primary
violation if it is shown that “(1) a primary violation occurred, (2) there was an act or omission by
the respondent that was a cause of the violation, and (3) the respondent knew, or should have
known, that his conduct would contribute to the violation.” See In re Robert M. Fuller, Rel. No.
34-48406 (Aug. 25, 2003) (Commission Opinion). Negligence is sufficient to establish liability for
causing a primary violation that does not require scienter. See Howard v. SEC, 376 F.3d 1136,
1141 (D.C. Cir. 2004).
10. BACNAH is liable for causing Merrill’s violations of Exchange Act Section 17(a)
and Rule 17a-8. Merrill committed a primary violation of Exchange Act Section 17(a) and Rule
17a-8. BACNAH’s acts and omissions caused Merrill’s violations in that it assumed responsibility
for creating and implementing Merrill’s SARs program, used the wrong $25,000 threshold for
filing no-suspect criminal SARs, and as a result failed to file hundreds of SARs on such activity
that fell between the proper $5,000 threshold and the improper $25,000 threshold. BACNAH
should have known that the legal threshold for broker-dealers to file no-suspect criminal SARs was
$5,000, not $25,000, and that using the improper threshold would contribute to Merrill’s primary
violations of Exchange Act Section 17(a) and Rule 17a-8.
E. RESPONDENTS’ REMEDIAL EFFORTS
11. In determining to accept Respondents’ Offers, the Commission considered
Respondents’ remedial acts and cooperation afforded to Commission staff.
12. After realizing that the wrong threshold was being used, BACNAH and Merrill
acted to remediate the issue, including: (a) updating policies, procedures, and automated
surveillance systems to properly account for the $5,000 threshold and training its Fraud
Investigations Group personnel responsible for filing SARs; (b) reviewing all other thresholds with
respect to Merrill and confirming that they were using correct thresholds across the SAR program;
(c) reporting the issue to Commission staff and other relevant regulators; and (d) conducting a
look-back to 2014 (the earliest date for which Merrill retained records) and filing 865 SARs on no-
suspect criminal activity that met the proper $5,000 threshold.
13. Respondents also voluntarily conducted and shared results of their internal
investigation that they conducted after discovering that they had been using the wrong threshold
for no-suspect criminal activity SARs for Merrill.
2
See Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (upholding the Commission’s
determination that, for the purpose of Section 15, “willfulness” requires only “that the person
charged with the duty knows what he is doing. It does not mean that, in addition, he must
suppose that he is breaking the law.” (internal quotation marks omitted)).
5
IV.
In view of the foregoing, the Commission deems it appropriate, in the public interest, to
impose the sanctions agreed to in Respondents’ Offers.
Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act and Section 203(e)
of the Advisers Act, it is hereby ORDERED that:
A. Respondents Merrill and BACNAH cease and desist from committing or causing
any violations and any future violations of Exchange Act Section 17(a) and Rule 17a-8 promulgated
thereunder.
B. Respondent Merrill is censured.
C. Respondent Merrill shall, within 14 days of the entry of this Order, pay a civil
money penalty in the amount of $6,000,000 to the Securities and Exchange Commission for
transfer to the general fund of the United States Treasury, subject to Exchange Act Section
21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C.
§3717. Payment must be made in one of the following ways:
(1) Merrill may transmit payment electronically to the Commission, which will
provide detailed ACH transfer/Fedwire instructions upon request;
(2) Merrill may make direct payment from a bank account via Pay.gov through
the SEC website at http://www.sec.gov/about/offices/ofm.htm; or
(3) Merrill may pay by certified check, bank cashier’s check, or United States
postal money order, made payable to the Securities and Exchange Commission and
hand-delivered or mailed to:
Enterprise Services Center
Accounts Receivable Branch
HQ Bldg., Room 181, AMZ-341
6500 South MacArthur Boulevard
Oklahoma City, OK 73169
Payments by check or money order must be accompanied by a cover letter identifying
Merrill as a Respondent in these proceedings, and the file number of these proceedings; a copy of
the cover letter and check or money order must be sent to Katharine E. Zoladz, Co-Acting
Regional Director, Division of Enforcement, Securities and Exchange Commission, 444 S. Flower
Street, 9
th
Floor, Los Angeles, CA 90071.
D. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be
treated as penalties paid to the government for all purposes, including all tax purposes. To
preserve the deterrent effect of the civil penalty, Merrill agrees that in any Related Investor Action,
6
it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of
compensatory damages by the amount of any part of Merrill’s payment of a civil penalty in this
action (“Penalty Offset”). If the court in any Related Investor Action grants such a Penalty Offset,
Merrill agrees that it shall, within 30 days after entry of a final order granting the Penalty Offset,
notify the Commission's counsel in this action and pay the amount of the Penalty Offset to the
Securities and Exchange Commission. Such a payment shall not be deemed an additional civil
penalty and shall not be deemed to change the amount of the civil penalty imposed in this
proceeding. For purposes of this paragraph, a “Related Investor Action” means a private damages
action brought against Merrill by or on behalf of one or more investors based on substantially the
same facts as alleged in the Order instituted by the Commission in this proceeding.
By the Commission.
Vanessa A. Countryman
Secretary OCR text (15,215c · tika · 95% conf)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 97872 / July 11, 2023
INVESTMENT ADVISERS ACT OF 1940
Release No. 6342 / July 11, 2023
ADMINISTRATIVE PROCEEDING
File No. 3-21524
In the Matter of
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated; and BAC
North America Holding Co.,
Respondents.
ORDER INSTITUTING ADMINISTRATIVE
AND CEASE-AND-DESIST PROCEEDINGS
PURSUANT TO SECTIONS 15(b) AND 21C OF
THE SECURITIES EXCHANGE ACT OF 1934
AND SECTION 203(e) OF THE INVESTMENT
ADVISERS ACT OF 1940, MAKING FINDINGS,
AND IMPOSING REMEDIAL SANCTIONS AND
CEASE-AND-DESIST ORDERS
I.
The Securities and Exchange Commission (“Commission”) deems it appropriate and in the
public interest that public administrative and cease-and-desist proceedings be, and hereby are,
instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange
Act”) and Section 203(e) of the Investment Advisers Act of 1940 (“Advisers Act”) against Merrill
Lynch, Pierce, Fenner & Smith Incorporated (“Merrill”) and BAC North America Holding Co.
(“BACNAH”), collectively “Respondents.”
II.
In anticipation of the institution of these proceedings, Respondents have submitted Offers
of Settlement (the “Offers”) which the Commission has determined to accept. Solely for the
purpose of these proceedings and any other proceedings brought by or on behalf of the
Commission, or to which the Commission is a party, and without admitting or denying the findings
herein, except as to the Commission’s jurisdiction over them and the subject matter of these
proceedings, which are admitted, Respondents consent to the entry of this Order Instituting
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the
Securities Exchange Act of 1934 and Section 203(e) of the Investment Advisers Act of 1940,
Making Findings, and Imposing Remedial Sanctions and Cease-and-Desist Orders (“Order”), as
set forth below.
2
III.
On the basis of this Order and Respondents’ Offers, the Commission finds that:
A. SUMMARY
From January 2009 to November 2019, Merrill failed to file certain Suspicious Activity
Reports (“SARs”) in violation of the broker-dealer books and records provisions of Exchange Act
Section 17(a) and Rule 17a-8. Merrill, as a registered broker-dealer, was required to file SARs on
transactions conducted or attempted by, at, or through it involving or aggregating to at least $5,000
that it knew, suspected, or had reason to suspect, among other things, involved the use of Merrill to
facilitate criminal activity. BACNAH, a subsidiary of Bank of America Corporation (“BAC”) and
the parent company of Merrill, assumed responsibility for creating and implementing Merrill’s
SAR policies and procedures and filing Merrill’s SARs. During the relevant period, however,
BACNAH’s Fraud Investigations Group used a $25,000 threshold, instead of the proper $5,000
threshold, with respect to transactions or attempted transactions suspected of using Merrill to
facilitate criminal activity where there was no substantial basis for identifying a suspect responsible
for the suspected criminal activity (“no-suspect criminal activity”). The no-suspect criminal
activity concerned Merrill customers who were victims of unauthorized debit card withdrawals,
forged or altered checks, account intrusions, identity theft, and/or phone or internet scams. As a
result, during the relevant period, BACNAH failed to file hundreds of SARs for Merrill on such
activity. By failing to file the required SARs, Merrill violated the books and records provisions of
Exchange Act Section 17(a) and Rule 17a-8, and BACNAH caused Merrill’s violations of those
provisions.
B. RESPONDENTS
1. Merrill is a subsidiary of BACNAH, is headquartered in New York, New York, and
is dually-registered with the Commission as a broker-dealer and investment adviser. In December
2017, the Commission found that Merrill failed to file SARs on the suspicious movement of funds
by its customers in violation of Exchange Act Section 17(a) and Rule 17a-8, censured it, and
ordered it to cease and desist from future violations and to pay a $13 million civil penalty. See In
Re Merrill Lynch, Pierce, Fenner & Smith Incorporated, Rel. No. 34-82382 (Dec. 21, 2017).
2. BACNAH is a subsidiary of BAC, is headquartered in Charlotte, North Carolina,
and is the parent company of Merrill and certain national banks.
C. MERRILL’S FAILURE TO FILE SARS
3. Merrill, as a registered broker-dealer, is required by rules promulgated by Financial
Crimes Enforcement Network (“FinCEN”) to file SARs on certain suspicious transactions or
attempted transactions in its accounts. BACNAH operates an enterprise-wide SAR program that is
responsible for (a) creating and implementing policies and procedures for Merrill and national
bank affiliates, and (b) filing SARs for them. Among the suspicious activity on which Merrill
must file SARs is suspected criminal activity, provided the activity meets or exceeds certain dollar
3
thresholds.1 For broker-dealers such as Merrill, the threshold amount is $5,000, regardless of
whether the activity involves an insider at the broker-dealer or no-suspect criminal activity. 31
C.F.R. § 1023.320(a)(2). For national banks, the threshold amount is $0 if an insider at the bank is
involved, $5,000 if there is a substantial basis for identifying a suspect responsible for the
suspected criminal activity (“suspect criminal activity”), and $25,000 if activity involves no-
suspect criminal activity. 12 C.F.R. § 21.11(c).
4. After BAC acquired Merrill in January 2009, BACNAH’s Fraud Investigations
Group assumed responsibility for detecting, investigating, and filing SARs on suspected criminal
activity at Merrill that did not involve Merrill insiders, money laundering, or violations of the Bank
Secrecy Act. The Fraud Investigations Group was already responsible for filing SARs on such
activity in accounts of its affiliated national banks using the bank thresholds of $5,000 for suspect
criminal activity and $25,000 for no-suspect criminal activity. The Fraud Investigations Group
then improperly used the bank threshold amounts with respect to Merrill transactions. The Fraud
Investigations Group’s enterprise-wide written SAR policies and procedures had a $25,000
threshold for filing no-suspect criminal activity SARs, including for Merrill.
5. In about September 2019, an employee recognized that the Fraud Investigations
Group was improperly using the $25,000 threshold, and not the proper $5,000 threshold, for no-
suspect criminal activity at Merrill. In November 2019, the Fraud Investigations Group began
using the proper $5,000 threshold for no-suspect criminal activity at Merrill and began filing
Merrill SARs on such activity.
6. As a result of BACNAH’s Fraud Investigations Group using the wrong threshold
for Merrill no-suspect criminal activity from January 2009 to November 2019, Merrill failed to file
hundreds of SARs on such activity. The no-suspect criminal activity concerned Merrill customers
who were victims of unauthorized debit card withdrawals, forged or altered checks, account
intrusions, identity theft, and/or phone or internet scams.
D. VIOLATIONS
7. Exchange Act 17(a) and Rule 17a-8 requires registered broker-dealers to “comply
with the reporting, recordkeeping, and record retention requirements” of certain FinCEN rules.
Those FinCEN rules require broker-dealers to file SARs with FinCEN to report a transaction (or a
pattern of transactions of which the transaction is a part) conducted or attempted by, at, or through
the broker-dealer involving or aggregating to at least $5,000 that the broker dealer knows, suspects,
or has reason to suspect, among other things, involves use of the broker-dealer to facilitate criminal
activity. 31 C.F.R. § 1023.320(a)(2).
1 Broker-dealers and national banks are also required to file SARs on transactions or attempted
transactions that they know, suspect, or have reason to suspect involve money laundering or
violations of the Bank Secrecy Act or have no business or apparent lawful purpose. Merrill’s
failure to file SARs at issue in this proceeding did not involve such suspicious activity.
4
8. As a result of the wrong threshold being used for no-suspect criminal activity
SARs, Merrill failed to file hundreds of SARs and thereby willfully violated Exchange Act Section
17(a) and Rule 17a-8 thereunder.2
9. Exchange Act Section 21C(a) provides liability for one who “causes” a primary
violation if it is shown that “(1) a primary violation occurred, (2) there was an act or omission by
the respondent that was a cause of the violation, and (3) the respondent knew, or should have
known, that his conduct would contribute to the violation.” See In re Robert M. Fuller, Rel. No.
34-48406 (Aug. 25, 2003) (Commission Opinion). Negligence is sufficient to establish liability for
causing a primary violation that does not require scienter. See Howard v. SEC, 376 F.3d 1136,
1141 (D.C. Cir. 2004).
10. BACNAH is liable for causing Merrill’s violations of Exchange Act Section 17(a)
and Rule 17a-8. Merrill committed a primary violation of Exchange Act Section 17(a) and Rule
17a-8. BACNAH’s acts and omissions caused Merrill’s violations in that it assumed responsibility
for creating and implementing Merrill’s SARs program, used the wrong $25,000 threshold for
filing no-suspect criminal SARs, and as a result failed to file hundreds of SARs on such activity
that fell between the proper $5,000 threshold and the improper $25,000 threshold. BACNAH
should have known that the legal threshold for broker-dealers to file no-suspect criminal SARs was
$5,000, not $25,000, and that using the improper threshold would contribute to Merrill’s primary
violations of Exchange Act Section 17(a) and Rule 17a-8.
E. RESPONDENTS’ REMEDIAL EFFORTS
11. In determining to accept Respondents’ Offers, the Commission considered
Respondents’ remedial acts and cooperation afforded to Commission staff.
12. After realizing that the wrong threshold was being used, BACNAH and Merrill
acted to remediate the issue, including: (a) updating policies, procedures, and automated
surveillance systems to properly account for the $5,000 threshold and training its Fraud
Investigations Group personnel responsible for filing SARs; (b) reviewing all other thresholds with
respect to Merrill and confirming that they were using correct thresholds across the SAR program;
(c) reporting the issue to Commission staff and other relevant regulators; and (d) conducting a
look-back to 2014 (the earliest date for which Merrill retained records) and filing 865 SARs on no-
suspect criminal activity that met the proper $5,000 threshold.
13. Respondents also voluntarily conducted and shared results of their internal
investigation that they conducted after discovering that they had been using the wrong threshold
for no-suspect criminal activity SARs for Merrill.
2 See Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (upholding the Commission’s
determination that, for the purpose of Section 15, “willfulness” requires only “that the person
charged with the duty knows what he is doing. It does not mean that, in addition, he must
suppose that he is breaking the law.” (internal quotation marks omitted)).
5
IV.
In view of the foregoing, the Commission deems it appropriate, in the public interest, to
impose the sanctions agreed to in Respondents’ Offers.
Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act and Section 203(e)
of the Advisers Act, it is hereby ORDERED that:
A. Respondents Merrill and BACNAH cease and desist from committing or causing
any violations and any future violations of Exchange Act Section 17(a) and Rule 17a-8 promulgated
thereunder.
B. Respondent Merrill is censured.
C. Respondent Merrill shall, within 14 days of the entry of this Order, pay a civil
money penalty in the amount of $6,000,000 to the Securities and Exchange Commission for
transfer to the general fund of the United States Treasury, subject to Exchange Act Section
21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C.
§3717. Payment must be made in one of the following ways:
(1) Merrill may transmit payment electronically to the Commission, which will
provide detailed ACH transfer/Fedwire instructions upon request;
(2) Merrill may make direct payment from a bank account via Pay.gov through
the SEC website at http://www.sec.gov/about/offices/ofm.htm; or
(3) Merrill may pay by certified check, bank cashier’s check, or United States
postal money order, made payable to the Securities and Exchange Commission and
hand-delivered or mailed to:
Enterprise Services Center
Accounts Receivable Branch
HQ Bldg., Room 181, AMZ-341
6500 South MacArthur Boulevard
Oklahoma City, OK 73169
Payments by check or money order must be accompanied by a cover letter identifying
Merrill as a Respondent in these proceedings, and the file number of these proceedings; a copy of
the cover letter and check or money order must be sent to Katharine E. Zoladz, Co-Acting
Regional Director, Division of Enforcement, Securities and Exchange Commission, 444 S. Flower
Street, 9th Floor, Los Angeles, CA 90071.
D. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be
treated as penalties paid to the government for all purposes, including all tax purposes. To
preserve the deterrent effect of the civil penalty, Merrill agrees that in any Related Investor Action,
http://www.sec.gov/about/offices/ofm.htm
6
it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of
compensatory damages by the amount of any part of Merrill’s payment of a civil penalty in this
action (“Penalty Offset”). If the court in any Related Investor Action grants such a Penalty Offset,
Merrill agrees that it shall, within 30 days after entry of a final order granting the Penalty Offset,
notify the Commission's counsel in this action and pay the amount of the Penalty Offset to the
Securities and Exchange Commission. Such a payment shall not be deemed an additional civil
penalty and shall not be deemed to change the amount of the civil penalty imposed in this
proceeding. For purposes of this paragraph, a “Related Investor Action” means a private damages
action brought against Merrill by or on behalf of one or more investors based on substantially the
same facts as alleged in the Order instituted by the Commission in this proceeding.
By the Commission.
Vanessa A. Countryman
Secretary