Published on:

Wells Fargo Broker Dealers Ordered by FINRA to Pay $3.4 Million in Restitution for Sale Practices Involving Volatility-Linked Exchange Traded Products (ETPs)

Wells Fargo Advisors Financial Network, LLC and Wells Fargo Clearing Services, LLC have been ordered by the Financial Industry Regulatory Authority (FINRA) to pay over $3.4 million as restitution to customers relating to “unsuitable recommendations of volatility-linked exchange traded products (ETPs) and related supervisory failures.” It was discovered by FINRA that Wells Fargo’s registered representatives, from July 1, 2010 until May 1, 2012, recommended such products without fully understanding their features and risks.

While “volatility-linked ETPs are generally short-term trading products that degrade significantly over time and should not be used as part of a long-term buy-and-hold investment strategy,” some Wells Fargo representatives believed that “the products could be used as a long-term hedge on their customers’ equity positions in the event of a market downturn.” In summary, FINRA found that Wells Fargo failed to institute a reasonable system to supervise solicited sales of volatility-linked ETPs.

FINRA makes it clear that “volatility-linked ETPs” are complex products that could be misunderstood and improperly sold by registered representatives,” and has issued Regulatory Notice 17-32 to member firms reminding that heightened supervision is required regarding these products. Susan Schroeder, Executive Vice President of FINRA’s Department of Enforcement stated that member firms “soliciting sales of volatility ETPs should already be well aware of the unique risks that they pose” and explained that “FINRA’s Regulatory Notice 17-32 is intended to further educate the industry so that member firms can assess their own practices and take appropriate remedial action if necessary.”

Wells Fargo accepted the findings of FINRA while neither admitting nor denying the charges.

Most investors seek out brokerage firms because they don’t have the requisite knowledge about investing and investment products and want confidence in how their money is invested. However, it is clear that not all registered representatives have adequate knowledge of the products that they recommend to their clients. If you are concerned about your investments and have suffered losses, please contact The Doss Firm, LLC at 1-855-4DOSS-LAW for a free consultation to determine if you may have a legal remedy to recover your losses. Please visit our website at www.dossfirm.com for more information about our firm.