Wells Fargo & Co. will be fined by U.S. Securities and Exchange Commission (SEC) to settle its charges it improperly pushed retail customers to actively trade complex investments in order to generate higher fees.
The financial company will pay $5.1 million to settle the U.S. regulator’s claim that employees abused clients by persuading them to sell certain investments before maturity, generating large fees for the lender.
The SEC on Monday said the payout includes a $4 million civil fine, plus the return of ill-gotten gains and interest, over misconduct by the Wells Fargo Advisors brokerage in its sale of so-called market-linked investments.
Wells Fargo Accusation “Flipping”
Wells Fargo was accused of reducing investor returns by encouraging customers to actively trade the investments though they were intended to be held to maturity and despite an internal policy prohibiting “short-term trading” and “flipping”
Brokers with Wells Fargo Advisors encouraged retail customers to sell market-linked investments meant to be held to maturity so they could replace them with new products, the said in a statement Monday.
The San Francisco-based bank did not admit or deny wrongdoing, but has taken steps to address sales practices that occurred from January 2009 to June 2013, the SEC said.
“It is important that brokers do their homework before they recommend that their retail customers buy or sell complex structured products,” Daniel Michael, head of the SEC’s complex financial products unit, said in the agency’s statement.
“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.”
Wells Fargo said in a statement it has made policy and management changes related to the SEC charges and is committed to helping customers achieve their investment goals.
The bank resolved the case without admitting or denying the regulator’s findings as it agreed to pay a $4 million fine and return $1.1 million in ill-gotten gains and interest.
“We are committed to helping our clients achieve their investment goals and cooperated fully with the SEC’s investigation,” Shea Leordeanu, a Wells Fargo spokeswoman said in an email. “We previously made policy and supervision changes related to this matter to improve internal controls.”
Wells Fargo has been plagued for nearly two years by scandals over how it treated its customers, including by selling them products they did not need to meet internal sales goals.
It has overhauled management and is trying to regain trust, including through an ad campaign saying that Wells Fargo was established in 1852 and "re-established" in 2018.
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