Wells Fargo Advisors Admits Failing To Maintain Controls And Producing Altered Document, Agrees To Pay $5 Million Penalty

in econ_news

from the Securities and Exchange Commission

The Securities and Exchange Commission charged Wells Fargo Advisors LLC with failing to maintain adequate controls to prevent one of its employees from insider trading based on a customer’s nonpublic information. The SEC also charged Wells Fargo for unreasonably delaying its production of documents during the SEC’s investigation and providing an altered internal document related to a compliance review of the broker’s trading.

 

Wells Fargo, which admits wrongdoing, has agreed to pay a $5 million penalty to settle the SEC’s charges, which are the first-ever against a broker-dealer for failing to protect a customer’s material nonpublic information.

According to the SEC’s order instituting a settled administrative proceeding, Wells Fargo highlighted in internal documents the risk of its personnel misusing confidential information obtained from retail customers and clients. The risk manifested itself when a Wells Fargo broker learned confidentially from his customer that Burger King was being acquired by a New York-based private equity firm. The broker then traded on that nonpublic information ahead of the public announcement. The SEC charged the broker with insider trading and obtained an asset freeze to prevent him from transferring illicit profits outside the U.S.

The SEC’s order finds that multiple groups responsible for compliance or supervision within Wells Fargo received indications that the broker was misusing customer information. However, these groups lacked coordination or any assigned responsibilities, and they ultimately failed to act on these indications. Federal law requires broker-dealers and investment advisers to establish, maintain, and enforce policies and procedures to prevent such misuse of material nonpublic information. Said Andrew J. Ceresney, Director of the SEC’s Enforcement Division:

When investors entrust private information to their stockbrokers or investment advisers, they have the right to expect that it will not be exploited. In this case – our first against a broker-dealer for failing to protect the nonpublic information conveyed by its customers – Wells Fargo failed to implement procedures to prevent misuse of such information.