According to a recent InvestmenNews article, Merrill Lynch has reached an agreement with the Securities and Exchange Commission (SEC) related to its sale of shares of a Chinese software company that has been found to be operating a fraud scheme. The SEC claimed that Merrill failed to perform proper due diligence functions in the unregistered sales of shares of Longtop Financial Technology Ltd. Merrill Lynch will be required to pay a penalty of $1.25 million and more than $154,000 in disgorgement and prejudgment interest from commissions and fees earned on the improper sales. The bank also agreed to be censured and consented to the order requiring it to cease and desist from committing or causing any future violations of the registration provisions of the Securities Act. The distribution generated almost $38 million in proceeds for the overseas issuer and its affiliates. According to the case summary, from January 2011 until August 2011, Merrill violated the registration provisions of federal securities laws by effecting unregistered sales of nearly three million shares of Longtop Financial securities for a customer.
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