FINRA Fines Wachovia Securities $1.4 Million for Prospectus Delivery Failures, Related Supervisory Violations
Firm Also Fined for Failing to Have Adequate Supervisory System to Monitor Submission of Information to FINRA
Washington, D.C. — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Wachovia Securities, LLC of St. Louis $1.4 million for its failure to deliver prospectuses and product descriptions to customers who purchased various investment products from July 2003 through December 2004 and for related supervisory failures.
FINRA found widespread deficiencies relating to the delivery of prospectuses in connection with certain classes of securities: exchange-traded funds (ETFs), collateral mortgage obligations (CMOs), auction market preferred securities, corporate debt securities, preferred stocks, mutual funds, alternative investment securities, equity syndicate initial public offerings (IPOs) and secondary purchases of equity non-syndicate initial public offerings.
"Disclosure of product information to the public is of paramount importance," said Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement. "When a firm fails to provide prospectuses and other offering documents, it deprives the investing public of information valuable in making informed investment decisions. Equally troubling were firm supervisory failures that caused a failure to provide FINRA with timely and accurate information."
FINRA's investigation showed that the firm failed to deliver the required prospectuses to customers in approximately 6,000 of approximately 22,000 transactions effected between July 2003 and December 2004. The market value of these 6,000 transactions was approximately $256 million.
The firm's failures to deliver prospectuses resulted from multiple causes, including coding errors, failures by certain business units to notify the firm's operations department that a prospectus was required to be delivered, and a failure to monitor and supervise the activities of its outside vendor contracted to deliver the prospectuses. FINRA also found that Wachovia Securities had failed to have adequate supervisory systems and policies and procedures in place to ensure that customers who purchased these investment products received prospectuses.
During the period involved, broker-dealers were required by federal securities laws and FINRA rules to deliver hard-copy prospectuses to prospective investors. On Dec. 1, 2005, the Securities and Exchange Commission adopted a new set of prospectus delivery rules that established an "access equals delivery" standard for many, but not all, securities. Under that standard, if an issuer posts a prospectus online for easy investor access, broker-dealers are not required to provide a final prospectus with confirmation for certain securities transactions. But the new access equals delivery rules do not apply to mutual funds, ETFs and certain other securities issued by investment companies.
In settling this matter, Wachovia Securities neither admitted nor denied the charges, but consented to the entry of FINRA's findings. As part of the settlement, a senior officer of the firm will certify that it has adopted and implemented systems and procedures reasonably designed to achieve compliance with federal securities laws and FINRA rules applicable to the delivery of prospectuses and product descriptions.
At the time of the activity at issue, Wachovia Securities, LLC was a subsidiary and non-bank affiliate of Wachovia Corporation. On Jan. 1, 2009, Wachovia Corporation merged with Wells Fargo & Company.
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