Wells Fargo to pay $3.4 million over investment sales practices

FINRA orders bank to pay impacted customers

The Financial Industry Regulatory Authority ordered Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network to pay more than $3.4 million in restitution to affected customers over faulty sales practices.

Separate from its fake accounts scandal announced back in September 2016, FINRA said Wells Fargo broker-dealers made unsuitable recommendations of volatility-linked exchange-traded products (ETPs) and related supervisory failures.

“FINRA seeks restitution when customers have been harmed by a member firm’s misconduct,” stated Susan Schroeder, executive vice president of FINRA’s Department of Enforcement. “We also credit firms that proactively detect and correct issues prior to detection by FINRA, as Wells Fargo did in this matter.”

The announcement alleged that from July 1, 2010 to May 1, 2012, certain Wells Fargo registered representatives recommended volatility-linked ETPs without fully understanding their risks and features.

Given the complexities of volatility-linked ETPs, they can be misunderstood and improperly sold by registered representatives, FINRA said.

In this case, FINRA found that certain Wells Fargo representatives mistakenly believed that the products could be used as a long-term hedge on their customers’ equity positions in the event of a market downturn. But this is not the case, and in fact, they are generally short-term trading products.

FINRA stated that in May 2012, Wells Fargo took remedial action to correct its supervisory deficiencies. This was before detection by FINRA and around the time that the firm was fined for similar violations relating to sales of leveraged and inverse ETPs.

FINRA noted that while Wells Fargo neither admitted nor denied the charges in the settlement, the bank consented to the entry of FINRA’s findings.

In a statement provided to HousingWire, a Wells Fargo spokesperson said the company made "significant changes" to its operations since the time period in question.

“Wells Fargo has settled claims with FINRA related to the sale and supervision of certain volatility-linked exchange-traded products purchased in conservative investment accounts between July 2010 and May 2012,” the Wells Fargo spokesperson said. “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. In cooperating fully with FINRA, we have made significant policy and supervision changes, including the discontinuation of the ETPs in focus.”

Wells Fargo has faced heightened scrutiny of its sales practices ever since the Consumer Financial Protection Bureau levied a $100 million fine against it in September 2016 for the "widespread unlawful" practices of employees who opened more than 2 million fake accounts to get sales bonuses.

Since that time, Wells Fargo has also been accused of making unauthorized changes to home loans held by customers in bankruptcy. The lawsuit against the company shows these unauthorized changes were being made even while the company was in the middle of dealing with its fake accounts scandal.

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