Wells Fargo Allegedly Fails to Supervise Rep Accused of Excessive Trading
According to the public records on FINRA’s website on January 30, 2020, the regulator reportedly fined Wells Fargo Advisors $175,000 and censured the firm for allegedly failing to properly supervise an ex-representative who was accused of purportedly excessively trading equity positions in three trust accounts of an 88-year-old client.
Between March 2012 and March 2016, Wells Fargo allegedly failed “to reasonably supervise the rep who excessively traded equity positions in three accounts belonging to a senior customer,” according to the Letter of Acceptance, Waiver and Consent.
FINRA alleges that the Wells Fargo-registered representative purportedly excessively traded in three trust accounts owned, when the excessive trading started, by an 88-year-old client. The rep allegedly made more than 2,000 trades in the customer’s three accounts and the customer reportedly paid at least $300,000 in commissions and other fees, according to FINRA.
The firm used a computer program to identify red flags of unsuitable trading using risk-based criteria including velocity, which the firm reportedly defined as annualized commissions and fees, divided by the equity in the account. The firm’s written supervisory procedures apparently required it to conduct customer interviews to address red flags in the event of inconsistencies in account activity, and when accounts were repeatedly identified by the system for review, including specifically any account flagged for six consecutive months, FINRA said.
While the firm’s computer program reportedly flagged the customer’s three accounts for high velocity a total of 40 times during the period, the firm purportedly did not reasonably address the flags, according to FINRA.
Wells Fargo reportedly discharged the registered representative responsible for the alleged violations. Ultimately, it paid $1 million in restitution to the customer in a settlement, according to FINRA.
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