According to FINRA, Merrill Lynch, Pierce, Fenner & Smith Incorporated was censured and fined $1,200,000 for failing to produce timely and complete document productions in connection with FINRA investigations of two brokers.

The firm was found in violation of its obligation to cooperate with regulatory investigations. In the first matter, three customers alleged in separate arbitrations that a broker engaged in unauthorized and excessive trading, unsuitable recommendations, and other sales practice violations. The firm settled with these customers. FINRA issued a request seeking telephone records, meeting notes, and account opening documents. The firm failed to produce or timely produce responsive telephone records because its vendor had destroyed documents older than three years pursuant to the vendor's deletion policy. The firm also failed to timely produce all meeting notes and account opening documents. Over two years after FINRA's initial request, the firm made a final production that included new responsive documents material to FINRA's investigation.

In the second matter, a customer alleged a broker participated in failed investments away from the firm, and the firm settled with the customer. FINRA requested emails related to potential selling away and supervisory review records. The firm produced responsive emails nearly two years after FINRA's initial request showing the broker was facilitating customer outside investments in projects not approved by the firm. After FINRA raised concerns about omissions, the firm produced additional records, including emails flagged by the firm's supervisory system containing red flags for potential misconduct.

These delays materially impeded FINRA's investigations. Firms are required to maintain and produce documents to regulators in a timely manner, and retention policies must comply with regulatory requirements. Investors should understand that regulatory investigations protect market integrity by holding brokers and firms accountable for misconduct. When firms fail to produce documents promptly, it delays or undermines these important investigations. This case emphasizes that firms must maintain adequate document retention systems and respond completely and promptly to regulatory requests.