Supervisory Failures Allegedly Resulted in Unsuitable Trades and Rollovers
Wells Fargo Clearing Services and Wells Fargo Advisors have arrived at a settlement with the Financial Industry Regulatory Authority (FINRA).
The two broker-dealers will pay $3.1M for purportedly not setting up and maintaining a supervisory system that complied with the self-regulatory organization’s (SRO’s) rules involving early unit investment trust (UIT) rollover trading. FINRA’s action is its final one in its targeted probe into the sale of UITs.
Of the $3.1M, $1.8M is customer restitution and the rest are fines. FINRA has now reached $16.8M in settlements with and imposed $6.6M in fines on six-broker dealers in this examination.
The SRO noted in this latest settlement that because of the way a unit investment trust is structured and its associated costs, this type of investment can be financially damaging to many investors especially when sold in the short term.
Our UIT securities attorneys represent investors throughout the US who suffered losses because a unit investment trust was unsuitably sold or misrepresented to them by their broker or broker-dealer. Contact us at Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlaywers.com) today.
What is a UIT?
UITs are Securities and Exchange Commission (SEC)- registered companies that give investors shares, also known as units, in a fixed portfolio of securities during a one-time public offering that ends on a specific maturity date of usually 15 or 24 months.
UIT Investors Paid $2.4M in Avoidable Fees
In this latest case, which involves the two Wells Fargo brokerage firms, FINRA contends that supervisory compliance failures related to UITs took place from July 2013 until June 2018.
During this time, Wells Fargo was generally aware that unit investment trusts require a “buy and hold” strategy and were unsuitable for investors who were unable to hold this type of product until maturity. Yet, also during this period, Wells Fargo earned about $1.8B in UIT purchases that were then sold over 100 days before reaching maturity. The proceeds were used to buy even more unit investment trusts.
Nearly $213M in UIT rollover transactions were used to purchase a series of the same unit investment trust, usually with similar investing strategies or goals as the former series. FINRA contends that failures in Wells Fargo’s supervisory system lead to its firms’ inability to properly identify early UIT rollovers and this caused customers to pay over $2.4M in sales fees that they would have otherwise avoided.
Other broker-dealers that have settled with FINRA in its UIT rollover investigation:
- 2017: Morgan Stanley was fined $3.25M and ordered to pay $9.8M in restitution.
- 2019: Oppenheimer & Co. agreed to pay over $3.8M in restitution and an $800K fine.
- 2019: Citigroup Global Markets was fined a $225,000 fine and agreed to pay $152,488.59 in restitution.
- 2020: Stifel, Nicolaus, & Co.’s fine was $1.75M fine and restitution was $1.9M.
- 2021: Merrill Lynch, Pierce, Fenner & Smith, Inc. consented to a $3.25M fine and $8.4M in restitution.
Wells Fargo Firms Also Censured $2.25M for Recordkeeping Violations
FINRA also just fined Wells Fargo Advisors Financial Network and Wells Fargo Clearing Services $2.25M for violations related to books-and-record retention requirements. The SRO found that for 17 years, Wells Fargo did not store 13 million customer records in the right format.
Our securities fraud law firm has spent over three decades going after Wells Fargo and other large Wall Street financial firms on behalf of investors seeking to recoup their investment losses and other damages. Call (800) 259-9010 to request your free case consultation with SSEK Law Firm today.