Wells Fargo is paying a $3 million fine to the Financial Industry Regulatory Authority (FINRA) for not properly watching its employees. These employees gave bad advice about long-term securities from January 2017 to December 2018.
They focused on syndicate preferred shares, closed-end funds, and medium-term notes. The bank made around $861,000 from these practices.
This case shows Wells Fargo didn’t do enough to oversee its workers’ recommendations for short-term trading of certain stocks and bonds. As part of the punishment, Wells Fargo will return over $2.03 million and pay nearly $600,000 back to customers.
They will also pay a fine of $400,000. Before this issue, they had already settled other cases related to poor investment advice for millions of dollars.
Background of the Fine
Table of Contents
Wells Fargo faced a $3M fine from the Financial Industry Regulatory Authority (Finra) due to allegations of improper trading practices. The alleged misconduct, which spanned from January 2017 to December 2018, involved failed supervision of registered representatives in handling specific securities such as syndicate preferred stock, closed-end funds (CEFs), and medium-term notes.
Wells Fargo fined by Finra for improper trading practices
The Financial Industry Regulatory Authority (Finra) imposed a $3 million penalty on Wells Fargo for non-adherence to trading rules. The incident occurred from January 2017 to December 2018, implicating Wells Fargo Clearing Services for inadequate supervision of its registered representatives.
These employees were offering unsuitable short-term trade suggestions for clients.
As a result of these actions, Wells Fargo generated approximately $578,000 from specific fees and close to $283,000 in sales commissions. Detailed investigation revealed that over 40 other representatives at Wells contributed around $1.5 million more in fees and nearly $317,000 in supplementary commissions from these trades.
To resolve the situation, Wells Fargo consented to refund over $2 million of those profits, reimburse almost $600,000 to impacted parties, and pay a penalty of $400,000.
Alleged misconduct involving failed supervision of registered representatives
Wells Fargo faced scrutiny from the Financial Industry Regulatory Authority (FINRA) for failing to oversee its financial advisors properly. Between January 2017 and December 2018, these advisors engaged in unsuitable short-term trading of securities like syndicate preferred stocks and closed-end funds.
These are meant for long-term investment, not quick sales. The misconduct highlighted Wells Fargo’s lack of a sound supervisory system, putting retail customers at risk.
Evidence showed more than 40 Wells Fargo representatives made improper recommendations to clients about these investments. One particular advisor, no longer with the firm, led actions that generated roughly $578,000 in sales concessions and about $283,000 in commissions for Wells Fargo.
This case underscores significant lapses in the bank’s duty to supervise its employees and protect investors’ interests effectively.
Period of concern from January 2017 to December 2018
From January 2017 to December 2018, Wells Fargo engaged in trading practices that did not meet the standards set by the Financial Industry Regulatory Authority (Finra). These activities included trades in specific financial products such as syndicate preferred stock, closed-end funds (CEFs), and medium-term notes.
This period saw registered representatives making short-term trade recommendations that were unsuitable for retail customers. As a result, Wells Fargo earned around $578,000 from concessions and about $283,000 from commissions.
Evidence also pointed out at least 40 other Wells representatives who pushed for similar short-term purchases and sales of these financial instruments. These additional actions led to the company making $1.5 million more in concessions and roughly $317,000 in commissions.
The profits from preferred stocks were generally close to 2%, while earnings from CEFs and medium-term notes ranged between 1% and 2%. Moving on to our next section sheds light on specific securities involved.
Specific Securities Involved
Wells Fargo was involved in syndicate preferred stock, closed-end funds (CEFs), and medium-term notes. The securities were allegedly part of the improper trading practices leading to the significant fine.
Syndicate preferred stock
Finra penalized Wells Fargo $3 million for improper trading practices involving syndicate preferred stock. The alleged misconduct occurred from January 2017 to December 2018 and included unsuitable short-term trading recommendations by registered representatives.
This led to concessions of approximately $578,000 and commissions of about $283,000 earned by Wells Fargo. Moreover, 40 other representatives recommended short-term purchases and sales of these stocks, resulting in a total of $1.5 million in concessions.
The average concessions earned for preferred stock were typically around 2%. As part of the settlement with Wells Fargo, Finra noted that the company agreed to disgorgement exceeding $2.03 million.
The investigation also highlighted previous settlements between Finra and Wells Fargo regarding allegations related to unsuitable recommendations across various financial products.
Addressing syndicate preferred stock and its associated improper activities showcases the broader challenge within the banking sector to ensure compliance with regulatory requirements.
Closed-end funds (CEFs)
Wells Fargo participated in improper trading practices linked to closed-end funds (CEFs). The period of concern for the misconduct ranges from January 2017 to December 2018. Evidence suggests over 40 Wells representatives recommended short-term purchases and sales of CEFs to retail customers, leading to earnings of $1.5 million in concessions and approximately $317,000 in commissions for Wells Fargo, often at a loss to the customers.
Medium-term notes
Wells Fargo earned around $283,000 in commissions from medium-term notes. As part of the settlement, Wells Fargo agreed to pay disgorgement of over $2.03 million, restitution of nearly $600,000, and a fine of $400,000 related to medium-term notes.
This indicates a significant financial impact on the company as a result of their involvement with medium-term notes. The figures illustrate the scale and consequences associated with Wells Fargo’s actions related to these specific securities under investigation by Finra.
The wrongdoing concerning medium-term notes has led to substantial monetary penalties for Wells Fargo. The large sum paid for disgorgement and restitution in relation to this particular type of security demonstrates the severity and extent of the improper trading practices involving medium-term notes during the specified period from January 2017 to December 2018.
Finra’s Findings
Finra discovered a lack of proper oversight by Wells Fargo Clearing Services, unsuitable short-term trading recommendations from registered representatives, and significant earnings and commissions made by Wells Fargo.
To learn more about Finra’s findings on improper trading practices at Wells Fargo, click here.
Lack of proper oversight by Wells Fargo Clearing Services
Wells Fargo Clearing Services neglected to oversee the activities of registered representatives regarding the long-term holding of securities, which allegedly led to misconduct from January 2017 to December 2018.
This lack of oversight included inappropriate short-term trading recommendations by the representatives and resulted in Wells Fargo gaining about $578,000 in concessions and approximately $283,000 in commissions.
Evidence also indicates that at least 40 additional Wells representatives recommended short-term purchases and sales of syndicate preferred stocks and closed-end funds (CEFs) to retail customers.
The Financial Industry Regulatory Authority (Finra) emphasized prior settlements with Wells Fargo related to similar allegations of unsuitable recommendations, highlighting the need for enhanced supervisory responsibilities over the conduct of registered representatives.
This improper oversight occurred within the securities laws domain against a backdrop where misconduct involving failed supervision led to civil actions and financial consequences for Wells Fargo.
Registered representative’s unsuitable short-term trading recommendations
A registered representative at Wells Fargo made inappropriate short-term trading recommendations regarding syndicate preferred stock, closed-end funds (CEFs), and medium-term notes.
This resulted in Wells Fargo earning around $578,000 in concessions and roughly $283,000 in commissions from the actions of the respective representative. Furthermore, at least 40 other Wells representatives recommended short-term purchases and sales of syndicate preferred stocks and CEFs to retail customers, acquiring $1.5 million in concessions and about $317,000 in commissions.
The concessions earned by Wells Fargo for preferred stock hovered around 2%, while they ranged between 1% and 2% for both CEFs and medium-term notes. It is worth noting that Finra previously fined Wells Fargo $35 million in 2021 for inappropriate recommendations related to single-inverse exchange-traded funds.
Earnings and commissions made by Wells Fargo
Wells Fargo earned around $578,000 in concessions and approximately $283,000 in commissions from the registered representative’s actions. At least 40 additional Wells representatives recommended short-term purchases and sales of securities to retail customers, resulting in earnings of $1.5 million in concessions and roughly $317,000 in commissions for Wells Fargo.
The concessions earned by Wells Fargo for preferred stock were generally about 2%, while they ranged between 1% and 2% for closed-end funds (CEFs) and medium-term notes (MTNs). As part of the settlement, Wells Fargo agreed to pay disgorgement of more than $2.03 million, restitution of nearly $600,000, and a fine of $400,000.
Settlement and Previous Settlements
Wells Fargo agreed to disgorgement, restitution, and a $3 million fine as part of the settlement for improper trading practices. Previous settlements with Wells Fargo also involved unsuitable recommendations related to income-generating securities.
Disgorgement, restitution, and fine amount agreed to by Wells Fargo
Wells Fargo agreed to reimburse over $2.03 million as disgorgement and nearly $600,000 for restitution. Alongside these payments, the bank also accepted a fine of $400,000. These actions were part of a settlement with Finra on September 13, 2024.
In addition to this recent settlement, Wells Fargo has been involved in previous settlements amounting to millions of dollars in fines and restitutions related to improper trading practices.
The fine and settlement encompass various cases from earlier years, demonstrating ongoing regulatory scrutiny around Wells Fargo’s trading practices concerning syndicate preferred stock and closed-end funds (CEFs).
This points to continued concerns regarding the bank’s financial conduct relating to medium-term notes during the period spanning January 2017 through December 2018.
Previous settlements with Wells Fargo related to unsuitable recommendations
In 2020, Wells Fargo faced a settlement of approximately $2 million over switches from variable annuities to investment company products. In 2021, there was a fine of $35 million regarding unsuitable recommendations for purchasing and holding single-inverse exchange-traded funds. Moreover, in the same year, a settlement for about $3.4 million took place regarding supervisory deficiencies related to 529 plan share-class recommendations. Lastly, Wells paid over $2.6 million concerning issues related to early rollovers of Unit Investment Trusts in 2021.
Conclusion
Wells Fargo’s recent $3 million fine by Finra highlights the seriousness of improper trading practices in the financial industry. The specific securities involved, such as syndicate preferred stock and closed-end funds (CEFs), have raised concerns about failed supervision and unsuitable recommendations.
This case illustrates the need for strict oversight to protect retail customers from potential harm. Implementing efficient monitoring systems is crucial to prevent similar incidents and ensure compliance with regulations.
By emphasizing transparency and accountability, firms can enhance trust within the industry while safeguarding investors’ interests.
