FINRA Fines Merrill Lynch for Failures in Supervision of Leveraged ClientsFINRA Fines Merrill Lynch for Failures in Supervision of Leveraged Clients

By Elizabeth Dilts

NEW YORK, Nov 30 (Reuters) - The Financial IndustryRegulatory Authority said on Wednesday it fined Bank of America Merrill Lynch $7 million for inadequate supervision ofclient brokerage accounts that used leverage to buy Puerto Ricanmunicipal bonds and other securities.

FINRA found that between 2010 and mid-2013, Merrill Lynch'ssystems did not adequately enforce policies that govern howclients can use securities-backed loans. Lines of credit, calledloan management accounts at Merrill Lynch, allow clients toborrow money using the securities in their portfolios ascollateral.

FINRA found Merrill Lynch's systems failed to ensure thesuitability of Puerto Rican municipal bonds and closed-end fundsfor customers who were highly leveraged through these loans orwhose investments were mostly concentrated in Puerto Ricansecurities.

FINRA said that 25 customers with modest net worth had three-quarters of their portfolios invested in Puerto Ricansecurities and lost a total of $1.2 million.

The fine includes $780,000 in restitution for those clients.

"Following a comprehensive internal review of our loanmanagement accounts, we reported issues to FINRA, cooperatedfully with their inquiry and have strengthened our controls andprocedures," Bank of America spokesman Bill Halldin wrote in anemail.

Merrill Lynch neither admitted nor denied the charges. (Reporting By Elizabeth Dilts; Editingnby Steve Orlofsky)