The SEC is charging Wells Fargo Securities, formerly known as Wells Fargo Brokerage Services, and former VP Shawn McMurtry for selling complex investments to institutional investors without fully comprehending the investments’ level of sophistication or disclosing all of the risks involved to these clients. To settle the securities charges, Wells Fargo will pay a penalty of over 6.5 million, $16,571.96 in prejudgment interest, and $65,000 in disgorgement.
According to the Commission, Wells Fargo engaged in the improper sale of asset-backed commercial paper that had been structured with risky collateralized debt obligations and mortgage-backed securities to non-profits, municipalities, and other clients. The SEC contends that the financial firm did not secure enough information about the instruments, even failing to go through the investment private placement memoranda (and the risk disclosures in them), and instead relied on credit ratings. With this alleged lack of comprehension of the actual nature of these investment vehicles and the risks and volatility involved, as well as having no basis for making such recommendations, Wells Fargo’s Institutional Brokerage and Sales Division representatives went ahead and recommended the instruments to certain investors who had generally conservative investment objectives.
These allegedly improper sales happened between January and August 2007 when representatives recommended to certain institutional investors that they buy ABCP that were structured investment vehicles that were primarily CDO and MBS-backed (SIVs and SIV-Lites). Unfortunately, a number of the investors that did buy the SIV-issued ABCP, per Wells Fargo’s recommendation, lost money when 3 of these programs defaulted that same year.
Meantime, the SEC is accusing McMurtry of violating the financial firm’s internal policy and choosing a certain ABCP issuer for one longstanding municipal client. He too allegedly did not obtain enough information about the investment and only depending on its credit rating. He has agreed to pay $25,000 and serve a 6-month securities industry suspension.
The Commission says that McMurtry and Wells Fargo, who, at the very least, were negligent when they recommended the ABCP program without being informed enough about the investments (or why they should be recommended to which client), failed to reveal the material risks involved and violated the Securities Act of 1933. Both have agreed to settle without admitting to or denying the charges.
Also, the SEC’s order is reporting that since 2007, Wells Fargo has executed several remedial steps to make sure that its representatives are given enough information so that they can make recommendations that are suitable to each investor. These clients are to be given any relevant information about the securities, including the details about the involved.
It is important that your financial representative recommended investments to you that were appropriate not just for your investment goals but also for the degree of risk that you and your finances are able/want to take. Certain investments are only for sophisticated investors and even then there are high risks involved.
If you believe that your losses are a result of unsuitable investments and/or because you were not given enough information to make the right decision for you and your investment, you should speak with an experienced institutional investment fraud lawyer right away.
Read the SEC Order (PDF)
SEC Charges Wells Fargo for Selling Complex Investments Without Disclosing Risks, SEC, August 14, 2012
More Blog Posts:
Wells Fargo & Co. May Have to Pay Another $15M to Minnesota Nonprofits For Securities Fraud, Institutional Investor Securities Blog, December 24, 2010
Wells Fargo Settles for $148M Municipal Bond Bid-Rigging Charges Against Wachovia Bank, Institutional Investor Securities Blog, December 8, 2011
Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs, Stockbroker Fraud Blog, May 3, 2012
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