Bank of America cracks down on penny stocks with purchase ban


Bank of America appears to be the first major wirehouse to institute an outright ban on the purchase of penny stocks. While other firms have review processes for these riskier trades, it’s still possible to buy penny stocks at Morgan Stanley and UBS, according to people with knowledge of those firms’ policies.

The move is the latest example of Bank of America pulling back on potentially risky activities. CEO Brian Moynihan has spent much of his tenure spending billions of dollars securing settlements with regulators. He often repeats his “responsible growth” mantra, and signs of the impact of that strategy abound.

In February, the bank halted clients from using credit cards to purchase bitcoin and other cryptocurrencies. The firm’s investment banking head, Christian Meissner, reportedly left earlier this month after clashing with Moynihan over the division’s risk appetite.

Still, the policy shift around penny stocks at Bank of America has sown confusion among some of the firm’s 17,442 financial advisers.

“We were told to get rid of them by a certain date,” said one Merrill Lynch broker. “I called compliance today to say my client doesn’t want to do that. Now they’re telling me he doesn’t have to sell, but it could be hard to get rid of it down the road.”

After initially banning the sale of most penny stocks, the firm put the policy under review, allowing most of them to be sold for at least the time being, according to one of the sources. Only the riskiest penny stocks that already may be the target of fraudulent schemes — labeled with a skull-and-crossbones icon by the trading firm OTC Markets Group — can no longer be sold. Eventually, all penny stocks could fall under the restriction, the person said.

Clients who can no longer sell penny stocks through Merrill Lynch have to transfer them to another brokerage to liquidate the positions. Some clients have had difficulty selling their holdings at rival brokerages, which are beginning to place restrictions on the asset class, according to one of the people.

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