Stories of the greedy and malicious actions that led to the biggest financial crisis since the Great Depression continue to surface more than three years after the demise of Lehman Brothers. On Thursday, FINRA announced it was fining Wells Fargo $2 million for selling risky structured products to the elderly and even trading on dead clients’ accounts.
Alfred Chi Chen, a former Wells Fargo broker who rose through the ranks to become vice president and senior financial consultant, was a relentless fellow. Between 2006 and 2008, Chen aggressively recommended and sold reverse convertible securities to his clients . Chen was so intent on selling these securities that he quickly became the company’s second-highest convertible security revenue producer by 2007, reaching the number one spot a year later. Of the 172 accounts Chen managed, 148 had more than 50% concentration in reverse convertible, while 46 of them had more than 90%. For this, Chen was promoted.
But, as the FINRA announcement made clear, all Chen cared about was selling a greater number securities to make more on commissions and fees. Th[/entity]e broker sold unsuitable auction and variable securities to 21 clients, 15 of which were above 80 years old. To get these transactions approved, he switched their risk levels from “low” to “medium.”
When faced with profits, Chen would tell his clients to buy more reverse securities, getting paid for having sold the securities to make the profits, and then getting paid transaction fees again for making new purchases. Chen raked in $193,000 in commission fees for his firm, taking home $69,000. “Chen’s unsuitable recommendations resulted in significant income for him and losses for many of his customers,” read the FINRA report.
Even more morally despicable, in 2008 Chen made unauthorized trades in three customers’ accounts, two of which “were dead at the time the trades were placed and executed,” according to the report. From FINRA:
After the customer’s death, Chen placed eight trades in the customer’s IRA account, purchasing almost $29,000 in securities and all but depleting the available cash in the account. After the [second] customer’s death, Chen sold 112 shares of stock, generating proceeds of $6,201.91.
Wells Fargo, which neither admitted nor denied the charges, said in a statement: "the issue involves a legacy firm which has been merged into Wells Fargo Advisors. Wells Fargo Advisors will continue to support the processes and procedures in place to prevent this kind of activity from happening." The legacy firm became Wells Fargo Investments LLC on October 2000, when Ragen Mackenzie was merged into Wells Fargo, according to Finra.
Stories of morally deviant behavior during the boom years before the financial crisis abound. Predatory lending, reverse red lining, unsuitable recommendations, and the sort were all the consequence of a failed paradigm coupled with relentless greed. In their search for profits, financial institutions sought to squeeze as much out of each customer, and find as many customers, as was humanly possible. It comes as no surprise that banks managed to engineer AAA ratings for securities backed by risky subprime mortgage loans.
Wells Fargo of course, is not the only financial firm to become embroiled in the mortgage securities mess. Goldman Sachs was famously taken to task by regulators when an investigative committee grilled Lloyd Blankfein and others on the Abacus CDO, a complex security Goldman sold to its clients as a good investment while shorting it at the same time. Even to this day, Citi, JPMorgan, Bank of America, and others are in trouble for robo-signing, or engaging in fraudulent foreclosure practices in order to sell homes at a faster pace.
During the boom years, bankers were living a dream of rising profits and expanding margins. Those dreams, rosy on the face of them, were built on greed, negligence, and moral decadence, as Alfred Chi Chen makes so perfectly clear.
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