SEC Merrill Gatekeeping Fine

• 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.

Enforcement

• $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.