The Financial Industry Regulatory Authority (FINRA) has announced that it has levied a $2 million fine on Wells Fargo Investments, LLC. The fine is related to the sale of reverse convertible securities to more than 20 customers by a former registered representative, Mr. Alfred Chi Chen. The fine also resulted from a failure “to provide sales charge discounts on Unit Investment Trust (UIT) transactions to eligible customers. “
FINRA indicated that “As part of the settlement, the firm is required to pay restitution to customers who did not receive UIT sales charge discounts and to provide restitution to certain customers found to have unsuitable reverse convertible transactions.” Wells Fargo Investments, LLC has “neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.”
Reverse convertibles, according to FINRA, “are interest-bearing notes in which repayment of principal is tied to the performance of an underlying asset, such as a stock or basket of stocks.” Reverse convertibles can be considered a risky investment because “an investor risks sustaining a loss if the value of the underlying asset falls below a certain level at maturity or during the term of the reverse convertible.”
FINRA found in this case that Wells Fargo Investments’ former registered representative Mr. Alfred Chi Chen “recommended hundreds of unsuitable reverse convertible investments” and many of the investors “were elderly and/or had limited investment experience and low risk tolerance.” FINRA reported that of Chen’s 172 accounts, a staggering 142 of them had reverse convertible concentrations of over 50%. In the opinion of the securities regulators “The reverse convertible transactions exposed these customers to risk inconsistent with their investment profiles, and resulted in overly concentrated reverse convertible positions in their accounts.
FINRA also determined that “Wells Fargo failed to provide certain eligible customers with breakpoint and rollover and exchange discounts in their sales of UITs…” FINRA believes that this was the result of “insufficient systems and procedures to monitor for unsuitable reverse convertible sales and to ensure that UIT customers received discounts for which they were entitled.”
If you are concerned about an investment you made with Alfred Chi Chen while he was employed at Wells Fargo Investments, LLC and would like to speak to a securities attorney about your potential to recover investment losses through FINRA arbitration please call our Chicago office at 312-238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
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