Wells Fargo fined again. This time the bank owes $35 million over investment advice
Just a week after Wells Fargo was hit with a $3 billion fine — one of the largest for a U.S. bank since the financial crisis — the Securities and Exchange Commission announced another settlement with the troubled bank over its sales practices.
Following an SEC investigation, Wells Fargo will pay a $35 million fine over allegations that it directed clients to risky investments called inverse ETFs, an exchange-traded fund that moves in the other direction of the index it is connected to. But when those funds are held for more than a day, investors can lose large sums of money unexpectedly, the SEC said in a press release announcing the settlement Thursday.
That was reflected in the bank’s guidance, the SEC said, but Wells Fargo failed to monitor the recommendations employees were making to customers related to the ETFs and did not give them sufficient training on the funds.
Some clients, including senior citizens and retirees, were advised to purchase and hang onto the funds for “months or years,” the SEC said. They collectively saw “millions of dollars of losses” by holding the investments, according to the court order in the case.
“As a result of Wells Fargo’s failure to meet these important obligations, some of its employees recommended complex instruments to retail investors who did not understand the risks involved,” said Antonia Chion, associate director of the SEC Enforcement Division.
In a statement, the bank said its advisors no longer sell the products in the full-service brokerage.
The money from Thursday’s settlement will be distributed to those who experienced losses as a result of holding the funds for more than 30 days.
‘Unsuitable recommendations’
In 2012, Wells Fargo was sanctioned by FINRA, a self-regulatory agency for the financial industry, for a similar practice. After that settlement, the bank said it had improved its policies and training, according to the court order.
But the SEC said that wasn’t enough to prevent workers from making “unsuitable recommendations” for the risky funds.
The most recent penalty against Wells Fargo comes just a week after the bank agreed to pay $3 billion over its fake account practices. The deal was announced by federal prosecutors and the Securities and Exchange Commission.
Wells Fargo employees opened millions of fake accounts from 2002 to late 2016 to meet high-pressure sales goals, a scandal that has clouded the bank’s image since it came to light in 2016.
The bank’s new chief executive Charlie Scharf, has acknowledged mistakes at the institution. On a recent earnings call, he said most of his time has been spent working to improve the bank’s reputation and deal with the scrutiny from regulators.
The San Francisco-based bank has its largest employment hub in Charlotte, with about 27,000 employees.
