Wells Fargo and its Former Research Director Fined Over Undisclosed Conflict

NASD levied a fine of $250,000 against Wells Fargo Securities LLC and $40,000 against its former research director, plus other sanctions, for failing to disclose that the lead analyst on reports issued on a company had accepted a position with that company.

The research reports concerned Cadence Design Systems, which designs semi-conductors for use in the global electronics market. According to the NASD, the analyst had applied for a job with that company prior to issuance of a report in 2005, and had two job interviews prior to issuance of others, none of which was disclosed in the reports.

The NASD’s sanctioning order states that the analyst was then offered a position at Cadence to earn over $300,000, plus Cadence stock and options, which she disclosed to the Wells Fargo and its head of research. Yet, weeks later Wells Fargo published a third research report favorable to Cadence, without disclosure of the hiring.

“The actions announced today should remind brokerage firms and research analysts of the importance of full disclosure of conflicts of interest in research reports,” said the NASD’s Head of Enforcement. “There is no doubt that, where a research analyst is pursuing employment or has accepted a job with a covered company, NASD rules require that information concerning such a clear conflict of interest must be disclosed in research reports.”

The analyst was also charged over her alleged role but is fighting the charges. Her lawyer called the allegations a “departure from the industry’s current understanding of the rules,” adding that the charges “ignore the plain language of the rules, which place the burden of disclosure in a member’s research report on the member itself”, meaning the disclosures were Wells Fargo’s duty, not that of the analyst.

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