Wells Fargo Pays SEC Fine Over Investment Sales Misconduct

by Ike Obudulu Posted on June 26th, 2018

Washington, D.C., USA: The U.S. Securities and Exchange Commission (SEC) announced today that Wells Fargo Advisors LLC agreed to settle charges of misconduct in the sale of financial products known as market-linked investments, or MLIs, to retail investors.

According to the order, the SEC found that Wells Fargo generated large fees by improperly encouraging retail customers to actively trade the products, which were intended to be held to maturity. As described in the SEC’s order, the trading strategy – which involved selling the MLIs before maturity and investing the proceeds in new MLIs – generated substantial fees for Wells Fargo, which reduced the customers’ investment returns.

The order further found that the Wells Fargo representatives involved did not reasonably investigate or understand the significant costs of the recommendations. The SEC found that Wells Fargo supervisors routinely approved these transactions despite internal policies prohibiting short-term trading or “flipping” of the products.

“It is important that brokers do their homework before they recommend that their retail customers buy or sell complex structured products,” said Daniel Michael, Chief of the Enforcement Division’s Complex Financial Instruments Unit. “The products sold by Wells Fargo came with high fees and commissions, which Wells Fargo should have taken into account before advising retail customers to sell their investments and reinvest the proceeds in similar products.”

Without admitting or denying the findings in the SEC’s order, Wells Fargo agreed to return $930,377 of ill-gotten gains plus $178,064 of interest and to pay a $4 million penalty. Wells Fargo also agreed to a censure and to cease and desist from committing or causing any violations and any future violations of certain antifraud provisions of the federal securities laws. The order recognizes that Wells Fargo took remedial steps to address the allegedly improper sales practices.

Wells Fargo said in a statement it has made policy and management changes related to the SEC charges, and is committed to helping customers achieve their investment goals.

Wells Fargo has been plagued for nearly two years by scandals over how it treated its customers, including by selling them products they did not need to meet internal sales goals.

It has overhauled management and is trying to regain trust, including through an ad campaign saying that Wells Fargo was established in 1852 and “re-established” in 2018.

Market-linked investments are fixed-maturity products whose interest rate is determined by the performance of a particular asset or market measure, such as equity and commodity indexes.

Today’s SEC fine comes not long after Wells Fargo & Co. paid $185 million to resolve claims by U.S. regulators that the bank’s employees opened deposit and credit-card accounts without customers’ approval to satisfy sales goals and earn financial rewards.

The lender opened more than 2 million accounts that consumers may not have known about, the Consumer Financial Protection Bureau said in a statement. Wells Fargo, which fired 5,300 employees over the improper sales practices, agreed paid a record $100 million fine to the CFPB, $35 million to the Office of the Comptroller of the Currency and $50 million to the Los Angeles city attorney to settle the matter. The San Francisco-based bank also will compensate customers who incurred fees or charges, the agencies said.

“Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses,” CFPB Director Richard Cordray said in his agency’s statement. “Because of the severity of these violations, Wells Fargo is paying the largest penalty the CFPB has ever imposed.”

The bank also agreed to resolve the allegations in that earlier case without admitting or denying the agencies’ accusations, and said in a statement that it had set aside $5 million for customer remediation.

Wells Fargo & Company is a diversified, community-based financial services company with $2.0 trillion in assets. Wells Fargo provides banking, investments, mortgage, and consumer and commercial finance through more than 8,300 locations, 13,000 ATMs, the internet and mobile banking, and has offices in 42 countries and territories. With approximately 263,000 team members, Wells Fargo serves one in three households in the United States.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
Phone
Email

Leave a Reply