A sweeping investigation into the sale of Unit Investment Trusts (UIT) by Wells Fargo financial advisors (NYSE: WFC) undertaken by the Financial Industry Regulatory Authority (FINRA) has been concluded, as announced by them. The investigation spanned a period of 5 years and triggered restitution payments amounting to a total of $16.8 million apart from fines totaling $6.6 million levied on 6 firms.
Haselkorn & Thibaut, a national law firm is currently investigating Wells Fargo for UIT sales. Investors can call their toll-free number at 1-800-856-3352 for a free consultation.
Wells Fargo settlement
The concluding act was a settlement reached with two Wells Fargo Advisors broker-dealers agreeing to a $3.1 payment, with $2.5 million in restitution and $650K in fines, on account of their supervisory failure that permitted improper short-term trading in UITs to be conducted.
The sanctions were levied against Wells Fargo Clearing Services, the core broker-dealer of the firm, as well as against their independent Financial Services Unit.
A spokeswoman said in a statement that “At Wells Fargo Advisors we take our regulatory responsibilities seriously and we are pleased to have this issue resolved.”
The charges were settled by Wells without denial or admittance of charges.
It appears that FINRA took into account the ‘extraordinary cooperation’ extended by Wells in the investigation, volunteering information, and sharing results and information on the implementation of alerts and other corrective measures as noted in the settlement. They brought in an external consultant for a review of their UIT trading system.
Action against other firms
The lion’s share of the penalties has, however, been contributed by Merrill Lynch, to the tune of $11.65 million, including $8.4 million in restitution as well as fines to the tune of $3.25 million. The settlement was reached in June.
Other firms penalized being:
- Oppenheimer & Co., asked to pay $4.7 million in December 2019
- Stifel Nicolaus & Co., asked to pay $3.6 million in May 2020
- Citigroup, asked to pay $377,000 in June 2019
Cambridge Investment Research, an independent broker-dealer, was asked to pay $150,000. That was, however part of a separate action and is not included in the tally for this sweep.
Investigation background
The FINRA UIT investigation started in 2016, triggered by its findings of improper rollovers, in the thousands, by Morgan Stanley Wealth Management brokers. The wirehouse was ordered to make a payment of $10 million in restitution and $3.25 million as fine. Those amounts did not make it to the tally of the amount published by FINRA upon conclusion of its broad and sweeping investigation. This is because they were considered to be cases that, while they triggered the sweep, happened before the broad investigation was initiated, as clarified by FINRA.
Jessica Hopper, FINRA’s head of enforcement, said in a statement, “This multi-year effort reflects FINRA’s commitment to proactively identifying problems and providing restitution to harmed investors. Firms should be particularly vigilant in identifying representatives who recommend trading strategies intended to generate commissions for the representative without regard for the intended use of the product.”
In the case of Wells Fargo, between July 2013 and June 2018, FINRA revealed that there was no automated system in place to trigger alerts in case UITs were rolled over well before their maturity date. $27 billion in UIT transactions were executed in this period in 123,000 customer accounts. This included trades worth $1.8 where the UITs were sold prior to maturity. In some of these cases the proceeds were invested in another UIT with investment objectives that were similar.
With a sales charge of 3.95%, UITs are expected to be held for periods ranging from 15 to 24 months, as also stated in the settlement. However, an early rollover would mean incurring the sales charge, although at a reduced rate of 2.95%, all over again. Repeated rollovers would incur repeated sales charges, in some cases amounting to 12.8% over a 2-year period, as disclosed by FINRA.
Over 10,000 customers received restitution payments from broker-dealers for being charged excessively in commissions and fees, during this exercise.
Other fallouts of the sweep
The fallout from the FINRA sweep has been the fall from the grace of brokers with regional firms and wirehouses alike who were found to have recommended early rollovers of UITs. In many cases, strict action has been taken by their broker-dealers, including several terminations.
The SEC has taken its own action against improper UIT sale activities. A settlement was reached with Raymond James Financial who agreed to pay $15 million in restitution and fines.
