Banking, finance, and taxes

Wells Fargo Settles More of Its Charges With the SEC

Chris Lange

Published: June 26, 2018 9:00 am

Last Updated: January 11, 2020 9:55 pm

Wells Fargo & Co. (NYSE: WFC) has settled more of its charges with the U.S. Securities and Exchange Commission (SEC). This is yet another offense by the megabank that is being added a growing list of things to apologize for. Specifically, these charges are in regards to the misconduct in the sale of financial products known as market-linked investments (MLIs) to retail investors.

Without admitting or denying the findings in the SEC’s order, Wells Fargo agreed to return $930,377 of ill-gotten gains plus $178,064 of interest and to pay a $4 million penalty. Although, this is only a drop in the bucket for the megabank that boasts a market cap of over $262 billion and had over $88 billion in revenue in 2017.

According to the SEC’s report, the agency found that Wells Fargo generated large fees by improperly encouraging retail customers to actively trade the products, which were intended to be held to maturity.  As described in the SEC’s order, the trading strategy — which involved selling the MLIs before maturity and investing the proceeds in new MLIs — generated substantial fees for Wells Fargo and reduced the customers’ investment returns.

Furthermore, the order found that the Wells Fargo representatives involved did not reasonably investigate or understand the significant costs of the recommendations. The SEC found that Wells Fargo supervisors routinely approved these transactions despite internal policies prohibiting short-term trading of the products.

Daniel Michael, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, commented:

It is important that brokers do their homework before they recommend that their retail customers buy or sell complex structured products. The products sold by Wells Fargo came with high fees and commissions, which Wells Fargo should have taken into account before advising retail customers to sell their investments and reinvest the proceeds in similar products.

Shares of Wells Fargo closed Monday at $53.96, with a consensus analyst price target of $60.87 and a 52-week trading range of $49.27 to $66.31.

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