Winston-Salem Journal (NC)
This time, the agency ordered $3.4 million in customer restitution related to investment advice provided from July 2010 to May 2012 by Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC.
The agency said Wells Fargo neither admitted nor denied the charges in the settlement.
Regulators said the Wells Fargo units provided “unsuitable recommendations of volatility-linked exchange-traded products and related supervisory failures.”
It determined some Wells Fargo representatives recommended the products “without fully understanding their risks and features,” in particular “mistakenly believing that the products could be used as a long-term hedge on their customers’ equity positions in the event of a market downturn.”
In fact, the agency said, volatility-linked ETPs typically are considered short-term trading products that degrade significantly over time and “should not be used as part of a long-term buy-and-hold investment strategy.”
The agency issued a regulatory notice to financial institutions that reminds them “of their sales practice obligations relating to these products.”
The agency said it took into consideration that Wells Fargo “took remedial action to correct its supervisory deficiencies in May 2012, prior to detection by FINRA and around the time that the firm was fined for similar violations relating to sales of leveraged and inverse ETPs.” The bank assisted the agency in its investigation.
“FINRA seeks restitution when customers have been harmed by a member firm’s misconduct,” Susan Schroeder, executive vice president of the agency’s enforcement department, said in a statement. “We also credit firms that proactively detect and correct issues prior to detection by FINRA, as Wells Fargo did in this matter.”
Wells Fargo confirmed the settlement in a statement.
“We are committed to helping our clients achieve their investment goals through advice that is regularly reviewed and aligned to their objectives and risk tolerances,” according to the statement.
“In cooperating fully with FINRA, we have made significant policy and supervision changes, including the discontinuation of the ETPs in focus.”
On Dec. 22, five Wells Fargo financial-services units were fined a combined $5.5 million by FINRA “for significant deficiencies relating to the preservation of broker-dealer and customer records in a format that prevents alteration.”
Wells Fargo Securities LLC and Wells Fargo Prime Services LLC were jointly fined $4 million. Wells Fargo Advisors LLC, Wells Fargo Advisors Financial Network and First Clearing LLC were jointly fined $1.5 million.
In 2013, FINRA ordered Bank of America Corp. and Wells Fargo to pay fines and restitution to settle charges that investor clients were pushed into investments that were inconsistent with their risk preferences. The Wells Fargo Advisors unit was fined $1.25 million and ordered to reimburse $2 million in losses to 239 customers.
In May 2012, FINRA imposed more than $2.7 million in fines and penalties on Wells Fargo Advisors for investment-related violations stemming from January 2008 to June 2009. Some of the violations were related to Wachovia Securities, which Wells Fargo took over at the end of 2008.
Wells Fargo was fined $2.1 million and ordered to pay $641,489 in restitution.
Also affected at that time were Citigroup ($2 million fine and $146,431 in restitution), Morgan Stanley ($1.75 million fine and $604,584 in restitution), and UBS ($1.5 million fine and $431,488 in restitution).
Wachovia, now Wells Fargo, sold risky nontraditional exchange-traded funds to customers who did not want that type of investment strategy, FINRA said.