Wells Fargo Advisors, LLC, now known as Wells Fargo Clearing Services, LLC, has recently agreed to pay a fine of $350,000. This stands as part of a settlement agreement with the US regulator, the Financial Industry Conduct Authority (FINRA). This settlement agreement is in regards to violations of rules that occurred between the time frame of November of 2012 and October of 2015.

Pushing For High-Risk Investments

During this Relevant Period, Charles Lynch and Charles Frieda both served as representatives of the firm, but are no longer part of Wells Fargo. Both Frieda and Lynch also recommended that many of their customers should invest substantial portions of the assets they have at Wells Fargo into four energy securities that hold high levels of risk. Through the conduct of these two representatives, multiple red flags were generated in regard to the overconcentration in the accounts of their customers. This, in turn, raised concerns of suitability that Wells Fargo had failed to investigate to a reasonable degree.

Through doing so, Wells Fargo Clearing Services had failed to reasonably supervise the activities regarding two of its representatives. Through doing so, it has violated FINRA Rules 2010 and 3110(a), as well as violating NASD Rule 3010(a).

More Than Half A Client’s Holding In High-Risk Securities

As a result of the recommendations of these two representatives, a customer 38 years of age held 92% of her total household account within these high-risk securities. Alongside this is a 54-year-old customer, who held 55.7% of her total household account value in these securities. These two representatives had sold an approximate $46 million in these securities to their respective customers. This represented approximately half of their total overall sales.

Both Lynch and Freida worsened this situation even more by way of recommending that customers purchase shares of other energy securities, as well. In numerous instances, they pushed their customers to invest more than 50% of their liquid net worth into these energy sector securities.

Compensations Being Made

Due to the recommendations of Lynch and Freida, $10 million was lost across 70 of their customers due to a price plummet in energy securities, which occurred back in 2014 and 2015.

This, in turn, resulted in Wells Fargo compensating 67 of Lynch and Fraida’s customers, doing so by the tune of $9.7 million. This, in turn, was based on the losses related to these four securities. Three customers were not compensated, however, but the firm will provide these customers restitution in line with FINRA’s settlement, as well.