FINRA Fines Wells Fargo Advisors $1 Million for Delays in Delivering Prospectuses to More Than 900,000 Customers
Firm Also Delayed Reporting Required Information Regarding its Brokers
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Wells Fargo Advisors, LLC of St. Louis, $1 million for its failure to deliver prospectuses in a timely manner to customers who purchased mutual funds in 2009, and for delays in reporting material information about its current and former representatives, including arbitrations and complaints involving its representatives.
FINRA found that Wells Fargo failed to deliver prospectuses within three business days of the transaction, as required by federal securities laws, to approximately 934,000 customers who purchased mutual funds in 2009. The customers received their prospectuses from one to 153 days late. Wells Fargo had failed to take corrective measures to ensure timely delivery of the prospectuses after its third-party service provider, which Wells Fargo contracted with to mail prospectuses to customers, provided the firm with regular reports indicating that a number of customers had not received the prospectuses on time.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, "Mutual fund prospectuses contain key information about a fund's performance, risks, strategies and costs. Wells Fargo ignored reports alerting them to serious problems with its prospectus delivery system and, as a result, its customers were deprived of valuable information needed to make informed investment decisions."
Wells Fargo contracted with a third-party service provider in 2009 to mail the prospectuses to customers. However, after receiving quarterly reports showing that between four percent and nine percent of the firm's mutual fund customers failed to receive required prospectuses on time and after being notified in daily reports that a number of prospectuses still required delivery, Wells Fargo did not take adequate corrective measures to ensure future delivery of the prospectuses in a timely manner.
FINRA also found that Wells Fargo did not promptly report required information to FINRA regarding its current or former representatives. Under FINRA rules, a securities firm must ensure that information on its representatives' applications for registration (Forms U4) is kept current in FINRA's Central Registration Depository (CRD). A firm must also ensure that it updates a representative's termination notice (Form U5) after the representative leaves the firm. These forms must be updated within 30 days of the firm learning that a significant event has occurred - including notification of a formal investigation, customer complaints or arbitrations filed against the representative. FINRA found that from July 1, 2008, to June 30, 2009, Wells Fargo failed to update 8.1 percent of their Forms U4 and 7.6 percent of the Forms U5 on time. In total, Wells Fargo filed nearly 190 late amendments to Forms U4 and U5.
In settling this matter, Wells Fargo neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
This action was brought by Jeff Ziesman, Deputy Regional Chief Counsel, under the supervision of Mark Koerner, Regional Chief Counsel of the Department of Enforcement.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2010, members of the public used this service to conduct 17.2 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999.
FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit www.finra.org.