The Financial Industrial Regulatory Authority (FINRA), the
largest independent securities regulatory firm, has fined the
brokerage arms of
Wells Fargo & Company
Bank of America Corporation
) for an amount totaling $2.15 million for the alleged sale of
floating-rate bank loan funds that went against the risk options
of its clients. Alongside, FINRA has ordered both the banks to
pay more than $3 million in compensation to its customers.
As per the settlement with FINRA, Wells Fargo has been ordered to
compensate its 239 clients with $2 million. Additionally, the
bank is required to pay a fine amounting to $1.25 million.
On the other hand, BofA has been slapped with a fine of $900,000.
Moreover, it has been asked to reimburse around $1.1 million to
its 214 customers.
Although Wells Fargo and BofA agreed to the terms of the
settlement, both the banks refrained from admitting or denying
The settlement relates to the activities that took place between
2007 and 2008 when Wells Fargo and BofA recommended the
ill-suited mutual funds to its clients. Both these banks
permitted their brokers to sell floating-rate bank loan funds to
The clients of these two banks were seeking conventional
investments. However, Wells Fargo and BofA sold floating rate
bank loan funds that exceeded the risk tolerance of the
customers. Moreover, the features of the floating-rate bank loans
failed to meet the investment objectives of clients who were
seeking safer investments.
Further, between 2007 and 2008, the value of these funds
depreciated due to the financial crisis. This resulted in the
clients suffering huge losses.
Moreover, both Wells Fargo and BofA failed to train their brokers
about the risks and characteristics that are unique to the funds.
Additionally, these two banks failed to supervise the sale of
Floating-rate bank loan funds are mutual funds that invest in a
portfolio of secured senior loans that are offered to entities
whose credit quality have been rated below investment grade, thus
making the investments highly risky. Moreover, these funds are
thinly traded and often turn illiquid.
The verdict is expected to drive firms and their brokers to
ensure that the investment recommendation fulfills the investment
criteria of clients and is also within their risk capacity.
Of late, FINRA has penalized several firms that include
Ameriprise Financial, Inc
). FINRA penalized Ameriprise and it's clearing firm, American
Enterprise Investment Services Inc., for $750,000. The company
and its affiliate were penalized on the grounds of failure to
properly oversee wire-transfer requests and the transfer of
customer funds to third-party accounts.
Wells Fargo and BofA carry a Zacks Rank #3 (Hold).
Enterprise Financial Services Corp
) is a better performing stock with a Zacks Rank #1 (Strong
AMERIPRISE FINL (AMP): Free Stock Analysis
BANK OF AMER CP (BAC): Free Stock Analysis
ENTERPRISE FINL (EFSC): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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