A former New Hampshire governor and a Cabletron co-founder allege they suffered over $200 million in damages.
New Hampshire’s Bureau of Securities Regulation is investigating Merrill Lynch and at least one former top broker over alleged churning of customer accounts to generate millions of dollars in excess commissions.
New Hampshire authorities are investigating Merrill Lynch and at least one former top broker over customer complaints of alleged misconduct that resulted in staggering losses, according to multiple sources familiar with the investigation.Bank of AmericaA spokesman for the New Hampshire Bureau of Securities Regulation declined to comment, while a spokesman for Merrill Lynch said the firm "does not comment on the existence of regulatory inquiries.
A CNBC investigation obtained FINRA arbitration documents that contain allegations of widespread misconduct by two former top Boston-based Merrill Lynch brokers. These allegations include excessive trading, unauthorized trading, overcharging commissions, failure to supervise and breach of fiduciary duty.
"We disagree with the claim that has been filed," a spokesman for Merrill Lynch said in an emailed statement. "This is a case that doesn't add up: a sophisticated, high net worth investor who claims to have been unaware of activity in their account for 11 years." "[My] account was churned in large part for the benefit of generating commissions that benefited both Charles Kenahan, Derm Cavanaugh, but mostly Merrill Lynch," Benson said.
"What started as something that we'd be able to save for, in my case, I wanted a refrigerator and a freezer, Bob wanted a little bit more than that. And we thought we'd sell a few things and be done. Turned out, it went to 7,000 employees and $1.6 billion in sales, and listed on the New York Stock Exchange," Benson said.Merrill Lynch was the underwriter for the company's initial public offering in 1989.
At Morgan Stanley, Cavanaugh partnered with Kenahan, an experienced financial advisor who was licensed in 1985. Kenahan, who is also an accomplished sailor and won the Swan 42 U.S. sailing championship in 2015, is described by Benson as "gregarious," someone who "enjoyed the finer things." Levine and Benson said they thought they had found a financial advisor they could trust and that Cavanaugh and Kenahan would act in their best financial interests. So, Levine and Benson decided to move their individual investment accounts to Morgan Stanley and into the care of the two men. According to arbitration documents, Benson's accounts with Kenahan and Cavanaugh totaled approximately $200 million, while Levine's accounts totaled around $180 million.
Benson said he remembers receiving an urgent call from Kenahan, who later came to Benson's house with stacks of papers that needed to be signed in order to move his accounts from Morgan Stanley to Merrill Lynch. That analysis is based on a report compiled by Craig McCann, founder and principal of Securities Litigation and Consulting Group. McCann was hired to do a forensic audit on Benson's investing accounts and was also an expert witness for Levine's case.
Levine also alleges his accounts were churned, saying in his filing that "the trading defies logic, except to the extent that it was obviously designed to further the interests of Kenahan and Merrill Lynch at [his] expense."It was Levine who first uncovered suspicious trading activity in his Merrill Lynch accounts after deciding to move the majority of his accounts back to Morgan Stanley, his claim details.
"Kenahan had an absolute duty to refrain from excessive trading, charge reasonable commissions, to only recommend securities that were suitable, and to refrain from self-dealing," Levine said in the FINRA arbitration filing. Adding that Kenahan "failed on all counts." In 2019, the case eventually went to a final hearing in front of an arbitration panel, and despite the strongly worded assertions by the firm denying Levine's allegations, Merrill Lynch decided to settle, before the arbitration panel announced its decision, for a record $40 million.
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