Wells Fargo Advisors Agrees to Pay Over $5 Million to Settle Securities Fraud Charges

wells-fargo-wagon-300x225On 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.

Wells Fargo Customers to Receive Restitution

As part of the settlement, Wells Fargo will pay a penalty totalling $5,108,441.27 of which $2,528,515 will be deposited into an escrow account for distribution to affected customers.  Although Wells Fargo’s censure and payment of a large fine are made without having to admit or deny any of the findings by SEC, the SEC’s findings (which can be read here) speak for themselves.  Wells Fargo’s history of widespread customer mistreatment should be well-known.  The $5.1 million penalty is a slap on the wrist compared to the $65 million fine Wells Fargo & Co. will pay following their settlement with the New York Attorney General over the bank’s “cross-selling” strategy that lead to the creation of fake customer accounts.  Click here for more California Securities Fraud Lawyer Blog articles related to Wells Fargo.