FINRA censured and ordered Wells Fargo Advisors to pay a total of $742k ($500k fine and $241,974.34 in restitution) for a series of failures related to the firm's structured repackaged asset-backed trust securities (STRATS) product, which regulators say Wells Fargo sold to customers improperly and unsuitably. Notably, FINRA said that Wells Fargo failed to advise its representatives that STRATS customers could lose their money under certain conditions.
According to FINRA attachments, the damages occurred in both Wells Fargo Advisors and Wachovia Securities investment accounts and was related to $12 million worth of STRATS products sold in primary and secondary markets.
According to the settlement order, Wells Fargo Advisors not only lacked a reasonable basis for recommending the complex STRATS product to retail customers, it failed to educate its representatives about STRATS' unique features and risks. In sum, FINRA believes that this lack of education placed Wells Fargo's reps in a position where they "did not comprehend the risks to customers" related to investing in STRATS.
On a related note, FINRA found that Wells Fargo failed to disclose the risks of investing in STRATS. For instance, documents available to firm employees did not contain adequate descriptions of the products and how a STRATS customer could lose principal as a result of termination fees if the underlying capital security was redeemed by the issuer, JP Morgan.
In fact, FINRA found that of Wells Fargo's internal STRATS brochures, "none of these explained that a customer investing in the STRATS could lose a significant percentage of their principal investment." FINRA described the firm's communications as "not fair and balanced."
Finally, regulators charged Wells Fargo Advisors with failing to educate its sales force on the risk posed to customers, failing to establish and maintain supervisory procedures, training deficiencies, and inadequate training regarding risks of investing in STRATS and suitability of the product. FINRA wrote that Wells Fargo failed to "adequately inform" its representatives about the risk of investing in STRATS.
If you have invested with Wells Fargo Advisors or Wachovia Securities and purchased structured repackaged asset-backed trust securities (STRATS) or another complex product without being adequately informed of the true risks—such as risk of losing principal or a fraction thereof—and this unsuitable or misleading recommendation and disclosure omission has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.