The Securities and Exchange Commission has fined Wells Fargo Advisors $35 million for unsuitable sales of complex single-inverse Exchange Traded Funds (ETFs) to customers without the investment experience or risk tolerance to make such trades.
The type of ETF at issue is designed for short-term trading, typically a day, by betting against an index. If held longer, customers may experience significant losses.
The SEC found that “Wells Fargo recommended that certain clients buy and hold, in many cases for months or years, single-inverse ETFs with daily reset features, including in retirement accounts. Some of these clients had little or no relevant investing experience and had been identified to Wells Fargo as clients with moderate or conservative risk tolerances.”
The SEC charged Wells Fargo with unsuitable investment recommendations and for failure to implement adequate policies and procedures to supervise the transactions and advisers, who did not understand the products.
Wells Fargo previously was sanctioned ty the Financial Industry Regulatory Authority (“FINRA”) for similar misconduct prior to 2009, paying more than $2.7 million in fines and sanctions. Wells Fargo at that time stated that it had reformed its policies and procedures for sales of single-inverse ETFs, however, the SEC failed to find any such improvement.
Stockbrokers have a duty to know the important facts pertaining to their customers’ investment objectives, risk tolerance, experience, investment time horizon, net worth, and other pertinent financial information, and have a reasonable basis to believe that the investments and strategies they recommend are suitable for the customer.
FINRA’s rules require a brokerage firm to establish, maintain, and enforce written procedures to supervise its associated persons and require member firms to have a reasonable basis for believing every transaction or strategy it recommends is suitable for the customer.
As blogged about in this space previously, Wells Fargo has been the subject of multiple regulatory actions and lawsuits, based on the creation of phony bank and credit card accounts, enrollment of customers in online bill pay without their authorization, and its failures to supervise Wells Fargo representatives in their recommendation of investments in volatility-linked exchange-traded products.
If you or someone you know has lost money as a result of a Wells Fargo-recommended investment that was unsuitable for you or was misrepresented to you by your broker/financial advisor, please call the Frankowski Firm at 888.741.7503 or fill out this contact form.