BofA's Merrill Lynch Adds New Restrictions on Penny-Stock Sales

(Bloomberg) -- Bank of America Corp.’s Merrill Lynch brokerage is increasing restrictions on penny-stock trading, adding to new rules for the higher-risk securities first unveiled in July.

Beginning Sept. 30, clients will not be able to sell penny stocks without a regulatory review, and the sale of the riskiest type of penny stocks will be outright banned, Bank of America said. Shares facing review will be those from companies valued at less than $300 million and traded for less than $5 each on an over-the-counter market.

“To ensure we are complying with Securities and Exchange Commission regulations and protecting the interests of our clients, we have made changes to our policy regarding low-priced security,” the bank said in an emailed statement. “As a result, certain LPS transactions may be subject to restrictions, trading prohibitions or other limitations.”

Penny stocks are considered risky because they can be more easily manipulated for fraudulent schemes since they are not traded on major exchanges and have fewer disclosure requirements. Jordan Belfort, known as the Wolf of Wall Street, gained fame after being convicted of fraud in a penny-stock scam that made him millions.

In July, Bank of America told clients they’d no longer be allowed to purchase penny stocks, and that starting Sept. 30 they wouldn’t be able to sell them. But clients requested more time to sell their penny stocks, according to the bank. With the new restrictions in place Sunday, clients can continue liquidating stocks, but will be subject to review.

The latest change was reported earlier Friday by CNBC.

To contact the reporter on this story: Claire Ballentine in New York at cballentine@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Daniel Taub

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