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Wells Fargo Settles Inadequate Supervision of Non-Traditional ETFs Claim for $35M

Wells Fargo Sold Non-Traditional ETFs to Retail Investors 

If you were an investor who suffered losses in non-traditional exchange-traded funds (ETFs) that you feel were unsuitable for you yet were recommended by a Wells Fargo investment advisor or broker, our ETF fraud attorneys at Shepherd Smith Edwards and Kantas (SSEK Law Firm) would like to offer you a free case consultation. 

Wells Fargo Advisors Financial Network and Wells Fargo Clearing Services recently agreed to pay $35M to settle US Securities and Exchange Commission (SEC) claims. These claims accused the two Wells Fargo entities of lax supervision of their registered investment advisors (RIAs). As well as the brokers who recommended certain complex non-traditional ETFs to retirees and other retail advisory and brokerage customers. 

Because of these purportedly inappropriate recommendations, customers who purchased these non-traditional ETFs were exposed to risks they could not handle and they collectively lost millions of dollars. 

Non-Traditional ETFs Are Complex and Risky

Non-traditional ETFs are not for every type of investor, and they most certainly are not for senior investors who cannot take on too much risk or who have limited incomes. 

More specifically, in the SEC’s case against Wells Fargo, the regulator contends that from 4/2012 through 9/2019, the firm recommended that retail customers, including retirees, purchase and hold single inverse ETFs. 

A number of these customers were inexperienced investors whom Wells Fargo knew from the start couldn’t take on too much risk. 

Inverse Exchange Traded-Funds

Inverse ETFs give investors a chance to make money by placing bets that the market will go down. They are short-term investments, and a buyer typically shouldn’t hold this type of investment for over a day. 

If timed improperly, they can lead to huge losses. Yet, according to the SEC, Wells Fargo’s brokers and financial advisors proceeded to recommend that certain clients buy and hold inverse ETFs for months or years. And in some cases, in their retirement accounts. 

Lax Supervision and Inadequate Training Regarding Inverse ETFs

The SEC said that during the period in question, the firm did not have the proper procedures and policies related to compliance when it came to inverse ETFs, and it failed to give its advisors the proper supervision and training. 

Because of this, the Commission said Wells Fargo brokers and investment advisors ended up making unsuitable non-traditional ETF recommendations to customers. 

It was just in 2012 that the Financial Industry Regulatory Authority (FINRA) and Wells Fargo reached a $2.7M settlement for allegedly similar behavior on the bank’s part. Wells Fargo said it had changed its procedures and policies regarding selling single inverse-ETFs but the SEC disputes the claim. 

By settling with the SEC now, Wells Fargo is not admitting to or denying the claims. However, it did say it will no longer be working with single inverse-ETFs.  

Brokerage Firm Negligence

Inadequate supervision, unsuitable recommendations, unnecessarily exposing customers to high risk – especially when they are conservative investors – and recommending complex investments to retail investors can all be grounds for investment fraud claims should financial losses result. 

For the past 30 years, SSEK Law Firm has helped thousands of investors to get back many millions of dollars from brokerage firms and their brokers and financial advisors for their negligent and fraudulent actions. Contact SSEK Law Firm online or call 800-259-9010.

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