Securities News: Wells Fargo’s Wealth Management Division is Reportedly Under Investigation, Merrill Lynch is Accused of Gatekeeping Failures Involving Unregistered Securities Sales, and NYSE Must Pay $14M Over Regulatory Failures

SEC Reportedly Investigating Wells Fargo Over Possible Inappropriate Investment Sales to Wealth Management Clients
According to news reports, the US Securities and Exchange Commission is investigating Wells Fargo’s (WFC) Wealth Management unit to see whether its clients were inappropriately sold certain in-house investment services even though these were not in their best interests. A source told Bloomberg that the regulator’s role in the probe has not been publicly disclosed.

However, in a regulatory filing, Wells Fargo revealed that it is looking into whether inappropriate recommendations were made related to 401(k) plan rollovers, alternative investments, and brokerage customer referrals to the firm’s “investment and fiduciary-services business.” The bank noted that it was assessing these matters in its wealth management business in the wake of inquiries made by federal agencies.

Bloomberg notes that it was in 2015 that JPMorgan Chase & Co. (JPM) consented to pay $267M over allegations that its customers were not told that it had profited by placing their funds in certain hedge funds and mutual funds that charged particular fees.

Merrill Lynch to Pay $1.25M Penalty to Settle Gatekeeping Failure Allegations
Merrill Lynch, Pierce, Fenner & Smith Inc. (BAC) has settled US Securities and Exchange Commission charges accusing the firm of not conducting the proper gatekeeping functions related to unregistered securities sales by Longtop Financial Technological Limited, which is based in China. Although not denying or admitting to the regulator’s findings, the firm will pay a $1.25M penalty, over $154K in disgorgement, and prejudgment interest related to fees and commissions earned from the allegedly improper sales.

The regulator found that Merrill Lynch sold nearly there million in Longtop Financial shares even though there were warning signs that illegal distribution involving unregistered sales was taking place. Longtop and its affiliates made nearly $38M from the sales.

SEC Division of Enforcement Associate Director Antonia Chion noted how important it was for brokerage firms to act as gatekeepers to prevent unregistered securities sales. SEC registration of Longtop securities has since been revoked.

NYSE Settles SEC Charges for $14M
The SEC announced that it has filed charges against the New York Stock Exchange and two affiliated exchanges over regulatory failures related to a number of incidents. The regulator’s case stems from five different probes.

According to the Commission, the violations involved include the mistaken execution of a market regulatory stop, implementing price collars on a day of “unusual market volatility” even though there was no applicable rule involved, and negligently and erroneously representing that stock prices were “automated” even though there had been “extensive” issues prior to two of the exchanges experiencing a complete shutdown. The SEC said that the NYSE exchanges violated rules related to “business continuity and disaster recovery,” including Regulation SCI. This is the first time ever a violation charge has been brought over this regulation, which is meant to enhance securities market integrity and technology infrastructure.

By settling, the NYSE, NYSE American, and NYSE Arca settled without denying or admitting to the Commission’s findings.

At The SEEK Partners Group, we work with institutional investors and high net worth individual investors in helping them fight for their financial recovery from losses sustained due to investment fraud. Contact our securities law firm today.

Wells Fargo’s Wealth-Management Business Faces SEC Probe, Bloomberg, March 1, 2018

The SEC Order in the Merrill Lynch Case (PDF)

The SEC Order in the NYSE Case (PDF)

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