The Financial Industry Regulatory Authority (FINRA) has fined Wells Fargo Investments $2m for unsuitable sales of reverse convertible securities and for failing to provide sales charge discounts on Unit Investment Trust (UIT) transactions to eligible customers.
As part of the settlement, the firm is required to pay restitution to customers who did not receive UIT sales charge discounts and to provide restitution to certain customers found to have unsuitable reverse convertible transactions.
FINRA also filed a complaint against Alfred Chi Chen, the former Wells Fargo registered representative who recommended and sold the unsuitable reverse convertibles, and made unauthorized trades in several customer accounts, including accounts of deceased customers.
The regulator found that Chen recommended hundreds of unsuitable reverse convertible investments to 21 clients, most of whom were elderly and/or had limited investment experience and low risk tolerance
FINRA executive vice president and chief of enforcement Brad Bennett said that Wells Fargo failed to review reverse convertible transactions to ensure they were suitable and also did not provide sales charge discounts to eligible customers purchasing unit investment trusts, both serious failings that harmed investors.
Wells Fargo neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.