SEC Merrill Gatekeeping Fine

On Mar. 8, SEC fined Merrill $1.17mn for unregistered securities.

  • Bank failed to perform gatekeeping on behalf of China-based issuer and affiliates.
  • Dealer has duty to inquire and know customer, before making unregistered sales.

Alleged violations

  • Re 3mn shares sold of Longtop Financial Technological securities despite red flags.
  • Failures to perform gatekeeping functions, in the unregistered sales for the issuer.
  • Warnings indicated these sales could be part of unlawful unregistered distribution.
  • Ultimately distribution generated almost $38mn, for overseas issuer and affiliates.


  • $1.25mn penalty; $154k disgorgement, and prejudgment interest on commissions
    and fees earned on improper sales, SEC revoked registration of Longtop securities.
  • SEC also granted firm waiver, of the rule 506(d)(1)(v)(b) disqualification provision.