Merrill Lynch Agrees to Fines, $25M In Restitution, After Broker Scammed Former Gov. Benson
Investment bank Merrill Lynch has agreed to the largest settlement for alleged securities fraud in state history, regulators announced Monday. The company is paying $2 million in fines, as well as restitution of nearly $25 million, to former New Hampshire Gov. Craig Benson, who claims his longtime stock broker bought and sold stocks at a rapid pace to drive up commissions.
Benson, who is referred to as Investor #1 in a consent order, filed a complaint with the state Bureau of Securities Regulation in 2019, alleging that Charles Kenahan, a Merrill Lynch stock broker based in Boston, was trading a massive number of stocks, including obscure overseas companies, without his consent.
In total, the bank generated over $20 million in revenue and commissions from the transactions, while Benson claimed he lost money on the investments, which included frequent stock trades of a Chinese manufacturer of rice cakes.
"This case is about an abuse of trust committed by Merrill Lynch and Kenahan," Jeff Spill, deputy director of the Bureau of Securities Regulation, said in a statement. “The investor trusted Merrill Lynch and Kenahan to give him good advice and act in good faith. Ultimately, Kenahan's recommendations benefited Kenahan and Merrill Lynch and not the investor.”
Benson made a sizable fortune by co-founding Cabletron, an early internet company, before being elected to a single term as governor of New Hampshire in 2002.
According to his complaint, Benson alleged Kenahan engaged in “excessive trading” that included millions of dollars in assets being transferred on a single day. Benson went public with his allegation during an interview with CNBC.
The settlement agreement includes a $2 million charge against Merrill Lynch for failing to properly monitor its broker. Kenahan was fired from the company last summer. Merrill Lynch has agreed to repay Benson $24,250,000.
“Excessive trading is prohibited...had [Merrill Lynch] followed its own policies and procedures, [it] would have discovered the above-described trading,” said the Bureau.