In a follow up to Malecki Law’s recent announcement of our investigation into reverse convertible securities comes news that the Financial Industry Regulatory Authority (FINRA) has fined Wells Fargo Investments, LLC $2 million for the selling of unsuitable reverse convertibles securities, as well as failing to grant sales charge discounts to certain customers on Unit Investment Trust (UIT) transactions. A UIT can be defined as ownership of a fixed portfolio of securities within a finite timespan. FINRA’s press release regarding the matter defines reverse convertibles as “interest-bearing notes in which repayment of principal is tied to the performance of an underlying asset, such as a stock or basket of stocks.” Customers of such reverse convertibles risk sustaining losses if the value of the underlying asset falls to a certain level at certain points of maturity during the contracted term.
A separate complaint was filed by FINRA against Alfred Chi Chen, the former Wells Fargo registered representative who approved and sold the reverse convertibles. Chen recommended hundreds of unsuitable investments to twenty-one clients, most of whom were elderly investment novices with low capacities for risk. Fifteen of those twenty-one clients were over the age of eighty. Chen also made unauthorized trades in several accounts, including those of deceased customers.
FINRA specified that Wells Fargo failed between January 2006 and July 2008 to give qualified customers breakpoint and rollover/exchange discounts to which they were entitled upon purchasing UITs. This has been attributed to insufficient internal monitoring of sales and discount eligibility.
Wells Fargo has neither admitted nor denied any wrongdoing within these charges, but consented to FINRA’s findings and will thus pay the fine in due course.
Investors with questions concerning potentially unsuitable or risky investments made by registered representatives should contact the attorneys at Malecki Law for a confidential consultation.
FINRA’s December 15, 2011 News Release can be found here.