Wells Fargo Fined $3M by FINRA Over Trading Abuses

FINRA fined Wells Fargo Clearing Services nearly $3 million for failing to supervise representatives engaged in unsuitable short-term trading, leading to client losses and regulatory violations.

September 17, 2024

The Financial Industry Regulatory Authority (FINRA) has sanctioned Wells Fargo Clearing Services, LLC (WFCS) nearly $3 million for failing to supervise a former representative involved in unsuitable short-term trading of syndicate preferred stock, closed-end funds, and medium-term notes. These products, designed for long-term holding, were inappropriately recommended for short-term trades to retail customers, resulting in client losses.

WFCS was fined $400,000, ordered to pay nearly $600,000 in restitution, and over $2 million in disgorgement, plus interest. FINRA found that from January 2017 to December 2018, at least 40 WFCS representatives engaged in this short-term trading strategy to collect commissions on both purchases and sales, prioritizing their financial gain over client interests.

FINRA's investigation revealed that WFCS’s oversight system only monitored trades within 90 days, leaving gaps in supervision. Even when red flags were identified, the firm’s response was inadequate, merely notifying representatives without taking corrective action. These failures violated FINRA rules requiring companies to maintain systems that properly supervise representatives and uphold high standards of commercial honor.

WFCS has since enhanced its trade review system and supervisory procedures. However, this is not the first time the company has faced regulatory penalties. Previous violations include supervisory failures related to 529 plans, unit investment trusts, and variable annuities, for which WFCS has paid millions in fines and restitution.

WFCS, headquartered in St. Louis, operates a broad securities business and employs around 19,000 representatives across 5,000 branches.