CFTC criticizes Merrill Lynch for actions on consultant
WASHINGTON (AP) _ Federal commodities regulators accuse Merrill Lynch & Co. of failing to adequately investigate a financial consultant who defrauded $8 million from investors, but the brokerage giant disputes that claim.
The Commodity Futures Trading Commission found that although Merrill Lynch had no knowledge of the consultant’s illegal activities and didn’t consent to them, it didn’t do enough to investigate them.
Merrill Lynch ``did nothing to confirm or corroborate″ what the consultant, Richard Conroy Bell, told it and did not contact the investors involved, the CFTC said in a report Wednesday.
In March and April 1992, Merrill Lynch received three inquiries from the Oklahoma Department of Securities regarding Bell’s activities.
Susan Thomson, a spokeswoman for Merrill Lynch, said Bell’s illegal activities ``did not involve Merrill Lynch or the client accounts.″
``To suggest that we were somehow remiss in not investigating these activities stretches the bounds of imagination as far as supervision is concerned,″ Thomson said from the firm’s headquarters in New York.
But some of the 110 investors whom Bell defrauded were Merrill Lynch customers, the agency said in the 13-page report.
The report noted that Merrill Lynch has paid some $3.5 million to defrauded investors in conjunction with the CFTC’s injunctive action against Bell in November 1993 that froze his assets and prohibited future illegal activity.
The brokerage firm’s Merrill Lynch, Pierce, Fenner & Smith unit hired Bell as a financial consultant in November 1989 at its branch office in Tulsa, Okla.
While a consultant from 1990 to November 1993 and for six months after leaving the firm in April 1993, Bell operated a Ponzi scheme, in which funds from new investors were used to pay off promised, fictitious returns to other investors, according to the report. Bell claimed to invest the funds in a commodity pool that traded crude-oil futures.
But no commodity futures or options were actually traded. Instead, the report said, Bell used ``a significant portion″ of the investors’ funds for personal purchases, including his house, cars and an airplane.
Bell pleaded guilty to a federal fraud charge in October 1994 and was sentenced to 44 months in prison.
CFTC Commissioner John Tull dissented from the report’s conclusions.