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Investor Protection

Wells Fargo Pays Over $1Mn for Not Halting Excessive Trading

April 10, 2020

by Howard Haykin



Even before the world came crashing down on Wells Fargo in 2016 for having ignored a toxic sales culture that led to the opening of as many as 2 million unauthorized customer accounts and credit cards, a broker-dealer affiliate was ignoring its own established policies and procedures for protecting customers against excessive trading.
Take for example “JZ,” an elderly customer of Wells Fargo Advisors, who was trustee and beneficial owner of 3 brokerage trust accounts. She was 88 years old when a registered broker began excessively trading in her accounts – all in plain sight of Firm compliance and supervisory personnel. JZ was 92 by the time the trading ended – which happened only because she filed a complaint.  Read on …  



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 bestin 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 flaggedone 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.


And investors are left with an important lesson: to monitor their own accounts for inappropriate activity. After all, ‘Big Brother’ is not always watching or doing its job.



[For further details, click on … FINRA Case #2017053034301.]