Merrill Lynch And Two Of Its Brokers, Kelly Feehrer And Scott Matthews, Sanctioned By FINRA For Unit Investment Trust Violations?
The Wolper Law Firm is currently investigating claims against Merrill Lynch’s based on its sales practices with regard to Unit Investment Trusts (UITs) and, specifically, the sales practices of Merrill Lynch James Financial Advisors, Kelly Feehrer and Scott Mathews. Kelly Feehrer has been in the securities industry since 1986 and Scott Matthews has been in the securities industry since 1985.
According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), on June 25, 2021, both Kelly Feehrer and Scott Mathews were sanctioned by FINRA regarding alleged unlawful sales practices in connection with Unit Investment Trusts. Contemporaneously, on June 25, 2021, Merrill Lynch was also sanctioned $11.7 million for its involvement, institutionally, in alleged unlawful Unit Investment Trust sales practices.
A Unit Investment Trust is a closed-end investment company typically issues redeemable securities (or “units”), like a mutual fund, which means that the UIT will buy back an investor’s “units,” at the investor’s request, at their approximate net asset value (NAV). A UIT typically will make a one-time “public offering” of only a specific, fixed number of units (like closed-end funds). Many UIT sponsors, however, will maintain a secondary market, which allows owners of UIT units to sell them back to the sponsors and allows other investors to buy UIT units from the sponsors.
A UIT will have a termination date that is established when the UIT is created, although it may be in the distant future. In the case of a UIT investing in bonds, for example, the termination date may be determined by the maturity date of the bond investments. When a UIT terminates, any remaining investment portfolio securities are sold and the proceeds are paid to the investors.
A UIT does not actively trade its investment portfolio. That is, a UIT buys a relatively fixed portfolio of securities (for example, five, ten, or twenty specific stocks or bonds), and holds them with little or no change for the life of the UIT. Because the investment portfolio of a UIT generally is fixed, investors know more or less what they are investing in for the duration of their investment. Investors will find the portfolio securities held by the UIT listed in its prospectus.
Merrill Lynch is one of several brokerage firms that has been sanctioned by FINRA regarding the sale of UITs. Specifically, FINRA is focused on short-term trading of UITs that have produced excessive commissions for Financial Advisors, like Kelly Feehrer and Scott Mathews, and minimal gain for the clients. UITs are known to produce commissions of 2%-3%, which is above-average for most securities products. By selling UITs prior to maturity, the cost of ownership to the client increases and, in turn, the broker is able to generate higher commissions in a shorter duration of time. It is alleged that Kelly Feehrer and Scott Mathews sold UITs prior to maturity and rolled-over the proceeds into new UIT offerings, generating a commission.
Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.
The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at (800) 931-8452 or by email at email@example.com.