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Wells Fargo To Pay $35M For Recommending High Risk Investments To Vulnerable Clients

Wells Fargo To Pay $35M For Recommending High Risk Investments To Vulnerable Clients

The United States Securities and Exchange Commission has ordered Wells Fargo & Company (NYSE: WFC) to pay $35 million in compensation to some of the bank's clients.

What Happened

Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network failed to supervise the employees who advised risky investments to vulnerable clients, including senior citizens and retirees, the SEC said in a cease & desist order posted Thursday.

Investment advisors and registered representatives of the San Francisco-based banks recommended single-inverse electronically traded funds to retail investors who had "limited incomes and net worth," and had conservative to moderate risk tolerances.

The single-inverse ETFs entail high risk, especially when held for longer than a day, yet the Wells Fargo representatives advised clients to keep them "for months or years," the SEC said.

The $35 million fine will be distributed among the affected clients, according to the SEC statement.

"Firms must maintain effective compliance and supervisory programs to ensure that the securities they recommend are suitable for their clients," Associate Director of the SEC Enforcement Division Antonia Chion said.

"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."

Why It Matters

The veteran investment bank has been in trouble with the regulators in recent times, especially over the fake accounts scandals.

Wells Fargo agreed to pay $3 billion in a settlement with the Department of Justice and the SEC for imposing sales pressure on employees that led them to create fake accounts in consumers' names without their consent.

Price Action

Wells Fargo's shares closed 3.78% lower at $42.47 on Thursday and were mostly unchanged in the after-hours session.


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