FINRA Sanctions Wells Fargo For Failure To Supervise
Wells Fargo Advisors LLC (now known as Wells Fargo Clearing Services LLC) a securities broker dealer headquartered in Saint Louis Missouri has been censured and fined $175,000.00 by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that it failed to supervise a stockbroker who effected excessive trades in an elderly customer’s investment account. Letter of Acceptance Waiver and Consent No. 2017053034301 (Jan. 29, 2020).
According to the AWC, between March of 2012 and March of 2016, excessive trades were made by a Wells Fargo stockbroker in the accounts of a trust established for the benefit of an eighty-eight year old customer, JZ. The AWC stated that two thousand trades were placed in three accounts owned by the senior investor which resulted in $300,000.00 in fees or commissions being charged by the stockbroker.
The AWC stated that supervisory controls were put in place by Wells Fargo to detect and prevent unsuitable trading. Among them was a computer program which presented red flags on suitability and determined problematic trading based on velocity, a term defined through taking the annual fees and commissions in an account and dividing it by equity. Also, supervisory procedures utilized by Wells Fargo required customers to be contacted when abnormalities in account activity occurred especially when accounts were repeatedly flagged. FINRA stated that if customers were contacted, Wells Fargo was supposed to ascertain information about the customer’s investment profile and the customer’s awareness of account documents and investment performance.
The AWC revealed that the supervisory process used by Wells Fargo was deficient as there were forty times in which JZ’s accounts had been flagged for having a high velocity where no legitimate steps were taken to follow up on this by the securities broker dealer. FINRA stated that for six straight months, two of JZ’s accounts had been flagged for having high velocity. The customer was not contacted in a timely manner, and when the customer was contacted, Wells Fargo neglected to discuss the customer’s investment profile or the performance of the account.
The securities broker dealer also did not mention to customers that it was contacting them because of high velocity in their accounts. The AWC stated that Wells Fargo failed to thoroughly investigate and assess if its stockbroker advised JZ on the high velocity trades or whether the customer was cognizant of the risks or drawbacks of the stockbroker’s trades.
FINRA stated that Wells Fargo failed on additional occasions to follow up on red flags in JZ’s accounts. For example, in August of 2015, Wells Fargo detected that there was high velocity in one of JZ’s accounts. The customer was not contacted by the securities broker dealer until April of 2016.
The AWC stated that the stockbroker has since been terminated by the securities broker dealer, and a customer initiated investment related complaint involving the stockbroker’s conduct was settled for $1,000,000.00 based upon allegations of inappropriate trading. FINRA determined that Wells Fargo violated FINRA Rules 2010 and 3110 and National Association of Securities Dealers (NASD) Rule 3010.