Settled Charges Against Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network
Kehoe Law Firm, P.C. is making investors aware that on February 27, 2020, the SEC announced settled charges against Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network for failing reasonably to supervise investment advisers and registered representatives who recommended single-inverse ETF investments to retail investors, and for lacking adequate compliance policies and procedures with respect to the suitability of those recommendations. The SEC ordered Wells Fargo to pay a $35 million penalty, which will be distributed to harmed investors.
As reflected in the SEC’s order and Wells Fargo’s internal guidance, when single-inverse ETFs are held for longer than a day, particularly in volatile markets, investors may experience large and unexpected losses. The SEC’s order finds that from April 2012 through September 2019, Wells Fargo’s policies and procedures were not reasonably designed to prevent and detect unsuitable recommendations of single-inverse ETFs. Additionally, Wells Fargo failed to adequately supervise its employees’ recommendations regarding single-inverse ETFs, and did not adequately train them concerning those products. The order finds that some Wells Fargo brokers and advisers did not fully understand the risk of losses these complex products posed when held long term. As a result, certain Wells Fargo investment advisers and registered representatives made unsuitable recommendations to certain clients to buy and hold single-inverse ETFs for months or years. According to the order, a number of these clients were senior citizens and retirees who had limited incomes and net worth, and conservative or moderate risk tolerances.
The SEC’s order finds that Wells Fargo failed to adopt written compliance policies and procedures reasonably designed to prevent unsuitable recommendations of single-inverse ETFs, and failed adequately to implement its existing written policies and procedures. The order also finds that Wells Fargo failed reasonably to supervise its financial professionals with a view to preventing their unsuitable recommendations. Without admitting or denying the findings, Wells Fargo agreed to pay a $35 million penalty and distribute the funds to certain clients who were recommended to buy single-inverse ETFs and suffered losses after holding the positions for longer periods. The order also censures Wells Fargo and requires Wells Fargo to cease and desist from committing or causing any future violations of the relevant provisions.