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- Julie Erhardt is SEC's New Acting Chief Risk Officer
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NEWSLETTERS & ALERTS
Wells Fargo Pays Over $1Mn for Not Halting Excessive Trading
by Howard Haykin
Between March 2012 and March 2016, the Wells Fargo broker placed more than 2,000 trades in JZ’s 3 accounts and hit her up for at least $300,000 in commissions and other fees. [On average, that's 500 trades each a year - or over 2 trades each and every business day.]
BUT FEAR NOT - - - Wells Fargo had a computer program for identifying and 'red flagging' unsuitable trading, along with required supervisory procedures that called for the Firm to interview the customer whenever an account was flagged. Such an interview had to include a discussion of: (i) the "reason the account was selected for account review;" (ii) the "client's investment profile;" (iii) whether the customer regularly received account statements and understood them; and, (iv) any realized or unrealized gains and losses, and large or unusual costs.
WHAT WENT WRONG. During the 4-year period, JZ's 3 accounts were flagged for excessive trading numerous times. Yet, Wells Fargo failed miserably in its efforts to protect the customer. The Firm was late in responding to the Red Flags, and its cursory or incomplete customer interviews essentially "left JZ in the dark" about the unsuitable trading activity in her accounts. For example, …
- Between November 2013 and April 2014, Wells Fargo flagged … two of JZ's accounts for excessive trading. But the Firm did not meet with JZ until May 2014, and the interview was cursory at best, in that:
► JZ wasn’t told that the Firm had detected excessive trading in her accounts;
► The Firm didn’t try to match the high level of trades to JZ’s investment profile;
► The Firm didn’t try to determine whether the trades had been recommended to her; and,
► The Firm didn’t try to determine whether JZ understood the implications of the trading.
- Between July 2014 and February 2015, Wells Fargo flagged … one of JZ's accounts for excessive trading on 5 occasions. But the Firm did not meet with JZ until July 2015, and that interview was essentially a repeat of the earlier one - in every respect.
- In August 2015, Wells Fargo flagged … one of JZ’s accounts for excessive trading. This time, the Firm waited 8 months before meeting JZ in April 2016.
CLOSING CHAPTERS. In the end, justice prevailed: (i) The registered broker was fired.; (ii) JZ accepted a $1 million payment to settle her complaint against the Firm; and, (iii) Wells Fargo was fined $175,000 for failing to supervise the broker’s conduct.
[For further details, click on … FINRA Case #2017053034301.]