The Securities and Exchange Commission announced on Tuesday that Wells Fargo Advisors has agreed to settle charges of misconduct in the sale of financial products known as market-linked investments, or MLIs, to retail investors. 

Wells Fargo Advisors (WFA) is a Delaware limited liability company with its principal place of business in St. Louis, Missouri. It is wholly owned by Wachovia Securities Financial Holdings, which is a wholly owned subsidiary of Wells Fargo & Co. WFA has been registered with the SEC as a broker-dealer since 1987 and as an investment adviser since 1990.

According to the order, the SEC found that Wells Fargo “generated large fees by improperly encouraging retail customers to actively trade the products, which were intended to be held to maturity.” As described in the SEC’s order, the trading strategy, which involved selling MLIs before maturity and investing the proceeds in new MLIs, generated substantial fees for Wells Fargo, while reducing customers’ investment returns. 

The SEC further alleged that those involved did not reasonably investigate or understand the significant costs of the recommendations. It also found that Wells Fargo supervisors routinely approved these transactions despite internal policies prohibiting short-term trading or “flipping” of the instruments.

“The products sold by Wells Fargo came with high fees and commissions, which Wells Fargo should have taken into account before advising retail customers to sell their investments and reinvest the proceeds in similar products,” Daniel Michael, chief of the Enforcement Division’s Complex Financial Instruments Unit, said in a statement.

Without admitting or denying the findings in the SEC’s order, Wells Fargo agreed to return $930,377 to customers, plus $178,064 of interest, and a $4 million penalty. Wells Fargo also agreed to a censure and to cease and desist from committing or causing any violations and any future violations of certain antifraud provisions of the federal securities laws. 

The order recognizes that Wells Fargo took remedial steps to address the allegedly improper sales practices.

Topics