According to FINRA, Merrill Lynch, Pierce, Fenner & Smith Incorporated was censured and fined $700,000 for failing to establish and maintain a supervisory system reasonably designed to prevent trainees from placing unsolicited telemarketing calls to individuals on the national do-not-call registry and the firm's internal do-not-call list.

The firm's monthly review process was inadequate because it only examined calls made by randomly selected trainees to numbers designated in the firm's contact management system as prospective clients. If a trainee failed to enter a phone number into this system, the firm would not review calls to that number for telemarketing compliance, even if the number appeared on do-not-call lists.

As a result, the firm's monitoring program failed to detect thousands of outbound calls its trainees placed to telephone numbers listed on the national do-not-call registry or the firm's internal list. The firm did not review these calls for compliance with telemarketing rules and did not determine whether any exceptions applied under FINRA Rule 3230.

After being alerted to the issue by a former employee, the firm conducted an internal review and self-reported its findings to FINRA. The firm subsequently implemented enhanced call screening and supervisory review technology, adopted enhanced procedures, conducted additional training, and began monitoring all outgoing trainee calls for compliance with telemarketing rules.

This case demonstrates that even large, established firms can have significant gaps in their compliance systems. Investors have a right to privacy and can register their phone numbers on the national do-not-call registry to limit unwanted solicitations. The case also shows the value of self-reporting and remediation when firms discover compliance failures.