On June 25, 2018, Wells Fargo Advisors settled a cease-and-desist proceeding by the SEC over securities law violations involving fraudulent sale of market-linked certificates of deposit (“MLCDs”) and market linked notes (“MLNs”).
Sort-Term Trading: The High Cost of Investing and Re-Investing
MLCDs and MLNs are intended to be long-term investments with limited liquidity that are usually held until maturity. According to the SEC, Wells Fargo customers were charged large upfront fees equal to approximately 5% – 6% of their principal amount. The SEC alleged that Wells Fargo representatives encouraged customers to redeem their MLCD and MLN investments prior to maturity at a loss and use the proceeds from the early redemption to re-invest in new MLCDs and MLNs with the exchange causing a loss in investment value of 7% or more. The SEC noted that one Wells Fargo representative engaged in 1,167 such exchanges that involved 201 accounts over a 2 1/2 -year period.