On December 7, 2020, the New Hampshire Bureau of Securities Regulation (the Bureau) settled a case against Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) and one its former Boston-based brokers, Charles Kenahan (CRD# 1351974). Pursuant to a signed Consent Order with the Bureau (the Order), available here, Merrill Lynch and Mr. Kenahan—without admitting or denying the facts set forth in the Order—consented to the largest monetary sanction in the Bureau’s history. Specifically, Merrill Lynch was assessed a fine of $1.75 million plus costs of $250,000, and was ordered to pay restitution of $24,250,000 and maintain compliance undertakings. The broker, Mr. Kenahan, was permanently barred from the securities business in New Hampshire.

As previously discussed, the Bureau recently conducted an investigation into Merrill Lynch and Mr. Kenahan in connection with two FINRA arbitration claims alleging account “churning” in various speculative stocks. The investigation commenced after FINRA arbitration claims were filed by two former clients, including former New Hampshire Governor Craig Benson. According to a Bureau press release, Merrill Lynch failed to supervise Mr. Kenahan and that he allegedly “traded without authorization, mismarked trade confirmations, excessively traded stocks and initial public offerings, over charged commissions, and inappropriately traded inverse and leveraged products.” Further, these actions purportedly “led to high commissions . . . and heavy losses for the investor.”

The Bureau received a complaint in January 2019 against Merrill Lynch and Mr. Kenahan, alleging numerous violations of the New Hampshire Uniform Securities Act due to Governor Benson’s accounts sustaining “heavy losses at a time when the stock market was gaining.” An arbitration claim exceeding $42 million had already been filed with FINRA in February 2018 against Mr. Kenahan, which remains pending at the time of this writing and will be settled in coordination with the New Hampshire matter. Mr. Kenahan, a longtime broker, was discharged from Merrill Lynch in July 2019 and is currently unregistered according to his FINRA BrokerCheck report.

Under New Hampshire securities laws, licensed persons must abide by the rules of the SEC and other self-regulating organizations such as FINRA, which set forth standards of conduct. The Order states that Merrill Lynch violated FINRA Rule 3110 (Supervision) by failing to fulfill the firm’s policies and procedures for supervising brokers, as broker-dealers have an obligation to ensure that their registered representatives are adequately supervised. Further, Mr. Kenahan violated FINRA Rule 2111 (Suitability) through excessive trading activities. Pursuant to FINRA rules, “factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation.”

The attorneys at Giarrusso Law Group LLC have extensive experience in handling claims on behalf of investors including claims related to securities fraud such as excessive trading or account churning. Investors who believe they may have been victimized by securities fraud may contact us at (201) 771-1115 or info@gialawgroup.com for a no-cost, confidential consultation.