Wells Fargo Advisors, LLC Sanctioned by FINRA for Failure to SupervisePublicly available records provided by the Financial Industry Regulatory Authority (FINRA) indicate that broker-dealer, Wells Fargo Advisors, LLC (hereinafter “Wells Fargo”) (CRD # 19616) was recently sanctioned by FINRA’s Department of Enforcement. The sanction occurred as a result of an investigation into its failure to supervise brokers who made unsuitable recommendations of securities. Accordingly, the Law Office of Kevin J. Deloatch, Esq. is interested in speaking to investors who have complaints regarding Wells Fargo.

Registration Background for Wells Fargo Advisors, LLC

Wells Fargo became a FINRA member in 1987. In 2016 it merged with another broker-dealer and became Wells Fargo Clearing Services, LLC. It is headquartered in St Louis, MO and offers a range of broker-dealer services. It currently has approximately 25,807 registered representatives and 6,216 branches.

FINRA’s Allegations against Wells Fargo Advisors, LLC

FINRA’s investigation led to Wells Fargo entering into a Letter of Acceptance, Waiver and Consent (AWC) with FINRA on August 28, 2020. According to the AWC, Wells Fargo consented to, without either admitting to or denying, the following findings by FINRA’s Department of Enforcement:

  • Between November 2012 and October 2015, two former firm representatives, Charles Frieda and Charles Lynch, recommended that many of their customers invest a substantial portion of their assets at Wells Fargo in four high-risk energy securities”;
  • Specifically, “Between November 2012 and October 2015, Frieda and Lynch recommended that many of their customers invest a substantial portion of their assets at Wells Fargo in the four high-risk energy securities, including one low-priced security”;
  • Frieda and Lynch exacerbated risk of investing in these securities by recommending that customers purchase shares of other energy securities. In many instances, their customers’ investments in energy-sector securities exceeded 50% of their liquid net worth”;
  • Wells Fargo had multiple red flags about overconcentration in Frieda and Lynch’s customers’ accounts that raised suitability concerns. Yet, Wells Fargo failed to reasonably investigate certain of these red flags”;
  • The alerts noted concentration levels ranging between 35.18% and 86.95% for these accounts, which was above the firm’s threshold for triggering a security concentration alert”;
  • Although the firm was aware that the representatives were recommending that certain of their customers concentrate in energy securities and these alerts raised red flags regarding the customers’ concentrations, specifically in a low-priced security, Wells Fargo failed to reasonably investigate certain of these alerts”; and
  • By virtue of the above, Wells Fargo violated NASD Rule 3010(a), regarding supervision, FINRA Rule 3110(a), regarding supervision and FINRA Rule 2010, regarding standards of commercial honor and principles of trade.

As a result of such violations and in addition to the above described findings and conclusions, FINRA’s August 28, 2020 AWC also indicates that Wells Fargo consented to the following sanction(s):

  • A censure;
  • A fine of $350,000.00 and
  • Restitution to the customers in the amount of $201,498.00, plus interest.

Wells Fargo Advisors, LLC has a History of Regulatory Actions

In addition to the findings of FINRA’s Department of Enforcement, FINRA BrokerCheck for Wells Fargo reveals it has a history of regulatory actions being brought against it, including but not limited to the following:

  • On February 27, 2020, the Securities & Exchange Commission (SEC) brought administrative proceedings against Wells Fargo. The SEC Charged that Wells Fargo had violated sections of the Investment Advisers Act of 1940 by failing to reasonably fulfill its supervisory responsibilities. As a result, Wells Fargo agreed to the sanctions of censure, a fine in the amount of $35,000.00 and a cease and desist.
  • On January 29, 2020, Wells Fargo entered into an AWC with FINRA. Wells Fargo consented to the entry of findings that it failed to reasonably supervise a former registered representative who excessively traded equity positions of an elderly customer. As a result, Wells Fargo agreed to the sanctions of censure and a fine in the amount of $175,000.00.
  • On March 11, 2019, the Securities & Exchange Commission (SEC) brought administrative proceedings against Wells Fargo charging that it had violated sections of the Investment Advisers Act of 1940 by failing to adequately disclose to its clients its conflicts of interest relating to its receipt of 12b-1 fees and its selection of mutual fund share classes that pay such fees. As a result, Wells Fargo agreed to the sanctions of censure, a disgorgement (including interest) in the amount of $17,363,847.29 and a cease and desist.

Wells Fargo Advisors, LLC has a History of Customer Initiated Arbitrations

In addition to the findings of FINRA’s Department of Enforcement, FINRA BrokerCheck for Wells Fargo reveals it has a history of being named as a respondent in customer-initiated arbitrations, including but not necessarily limited to the following:

  • On April 3, 2000, a customer initiated an arbitration against Wells Fargo. The customer alleged breach of fiduciary duty, misrepresentation, suitability and failure to supervise. The customer further alleged they sustained damages in the amount of $115,000.00. On June 4, 2001 a panel issued an award against Wells Fargo in the amount of $90,000.00.
  • On April 3, 2000, a customer initiated an arbitration against Wells Fargo. The customer alleged breach of fiduciary duty, churning, misrepresentation and suitability. The customer further alleged they sustained damages in the amount of $300,000.00. On April 12, 2000 a panel issued an award against Wells Fargo in the amount of $23,076.00.
  • On May 11, 2000, a customer initiated an arbitration against Wells Fargo. The customer alleged breach of fiduciary duty, negligence, misrepresentation, suitability and failure to supervise. The customer further alleged they sustained damages in the amount of $784,000.00. On April 12, 2000 a panel issued an award against Wells Fargo in the amount of $21,600.00.
  • On May 22, 2000, a customer initiated an arbitration against Wells Fargo. The customer alleged breach of fiduciary duty, breach of contract, failure to supervise and negligence. The customer further alleged they sustained damages in the amount of $34,000.00. On January 22, 2002 a panel issued an award against Wells Fargo in the amount of $8,000.00.

If you or someone you know has or had a brokerage account with Wells Fargo Advisors, LLC and have concerns regarding losses in your investments or possible sales practice violations including fraud, you may be entitled to recover lost funds. The Law Office of Kevin J. Deloatch, Esq. has an extensive securities law practice and over 30 years of experience on Wall Street. Call today at (646) 792-2156 for a free consultation. The time to file your claim may be limited so you should call today to avoid delay.