The US watchdog charged Wells Fargo Brokerage Services (now Wells Fargo Securities) for improperly selling asset-backed commercial paper (ABCP) structured with high-risk mortgage-backed securities and collateralized debt obligations (CDOs) to municipalities, non-profit institutions, and other customers, from January 2007 to August 2007.
The federal investigator revealed that Wells Fargo did not obtain sufficient information about these investment vehicles and relied almost exclusively upon their credit ratings.
Even, its representatives failed to understand the true nature, risks, and volatility behind these products before recommending them to investors with generally conservative investment objectives.
With regard to the above charges leveled against Wells Fargo, it has agreed to compensate over $6.5m to settle the SEC’s charges, and the money will be kept into a Fair Fund for the benefit of harmed investors.
SEC Enforcement Division’s Municipal Securities and Public Pensions Unit chief Elaine Greenberg said broker-dealers must do their homework before recommending complex investments to their customers.
"Municipalities and other non-profit institutions were harmed because Wells Fargo abdicated its fundamental responsibility as a broker to have a reasonable basis for its investment recommendations to customers," Greenberg added.
Since the time of fatal incident in 2007, Wells Fargo has initiated numerous remedial measures to ensure that its registered representatives have adequate information about the nature and risk of the securities they recommend to customers, and that relevant information about those securities will be fully disclosed to customers.
Wells Fargo and McMurtry consented to the SEC’s order without admitting or denying the findings. Wells Fargo agreed to pay a $6.5m penalty, $65,000 in disgorgement, and $16,571.96 in prejudgment interest. McMurtry has agreed to be suspended from the securities industry for six months and pay a $25,000 penalty.
