FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011./File Photo
WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission said on Thursday it ordered Wells Fargo & Co to pay $35 million to settle charges it failed to adequately supervise investment advisers who were recommending high-risk products.
Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network failed to supervise investment advisers who recommended single-inverse exchange-traded funds (ETFs). The advisers recommended the investments to customers with conservative or moderate risk tolerances, including senior citizens and retirees, the SEC said in a filing.
The order comes just a week after Wells Fargo & Co agreed to a $3 billion deal with the regulator and the U.S. Department of Justice to resolve criminal charges over its fake-accounts scandal.
Wells Fargo did not admit or deny the SEC’s findings from Thursday’s order. The $35 million will be distributed to certain people who received the recommendations and suffered losses, the SEC said.
When asked to comment on the settlement or charges, a spokeswoman for Wells Fargo Advisors said the firm no longer sells the products in the full-service brokerage.
“Firms must maintain effective compliance and supervisory programs to ensure that the securities they recommend are suitable for their clients,” Antonia Chion, associate director of the SEC enforcement division, said in a statement.
The firm’s policies were not “reasonably designed” to prevent and detect unsuitable recommendations of single-inverse ETFs from April 2012 to September 2019, the SEC said. The recommendations came after Wells Fargo received notice from the Financial Industry Regulatory Authority warning on sales practices for the risky products.
FINRA’s 2009 notice said that single-inverse ETFs were “not suitable for retail clients who plan to hold them for more than one trading session, particularly in volatile markets,” according to the order.
Reporting by Chris Prentice and Eric Beech ; Editing by Mohammad Zargham, Alistair Bell and Dan Grebler