The Securities and Exchange Commission (SEC) announced on Thursday settled charges against Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network for improperly recommending risky investments to some of its clients, including senior citizens and retirees. SEC ordered Wells Fargo to pay $35 million penalty.
SEC accused Wells Fargo for failing to supervise investment advisers and representatives and for lack of adequate compliance policies in place. The advisers directed clients, some with little to no investing experience, into risky investments by encouraging them to buy single-inverse ETFs.
The clients were advised to hold the ETFs for “months or years”, however SEC’s order and Wells Fargo’s internal guidance note that when single-inverse ETFs are held for longer than a day, especially in unstable markets, investors may suffer large and unexpected losses.
SEC found that Wells Fargo’s policies and procedures from April 2012 to September 2019 do not protect from or detect improper recommendations of single-inverse ETFs.
Antonia Chion, Associate Director of the SEC Enforcement Division, commented:
Antonia Chion
Firms must maintain effective compliance and supervisory programs to ensure that the securities they recommend are suitable for their clients. As a result of Wells Fargo’s failure to meet these important obligations, some of its employees recommended complex instruments to retail investors who did not understand the risks involved.
The fine in the amount of $35 million will be distributed among the harmed investors, SEC said.
The penalty comes after a $3 billion settlement with the Justice Department and the SEC on charges for consumer abuses including misleading investors and opening accounts without the customers’ consent.
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