FINRA fined Wells Fargo Advisors, LLC and Merrill Lynch, Pierce, Fenner & Smith Inc. $1.25 million and $900,000 respectively and ordered both firms to pay over $3 million in restitution to clients FINRA says suffered losses from unsuitable sales of floating-rate bank loan funds, which are mutual funds related to entities associated with below investment-grade credit or "junk" quality.
Accordingly, floating-rate bank loan funds are susceptible to "significant credit risks" and may be illiquid.
FINRA Case #2008014350501 (Wells Fargo)
FINRA Case #2008014763601 (Merrill Lynch)
Investigators found that Wells Fargo and Merrill Lynch's Banc of America made unsuitable recommendations of floating-rate bank loan funds to customers whose conservative risk tolerances and financial objectives did not match the "significant credit risks" posed by the funds.
The investigation states that between 2007 and 2008, both San Francisco-based Wells Fargo Advisors, formerly known as Wachovia Securities, LLC, and Merrill Lynch, then-known as Banc of America Investment Services, Inc., solicited and sold billions of dollars of floating rate loan funds to customers in potentially unsuitable transactions, resulting in nearly $2 million in customer losses (Wells Fargo) and $1 million in losses (Merrill Lynch).
The investigation found that both firms failed to establish an adequate supervisory system, including the formation and maintenance of written supervisory procedures, to supervise sales of floating rate loan funds.
In consenting to the above findings, neither Wells Fargo Advisors nor Merrill Lynch admitted nor denied the charges.
This significant settlement action comes just weeks after FINRA chairman and CEO Richard Ketchum implored firms to use "plain English" and move beyond simple compliance in order to "ensure that investors have a better understanding of risk and what's being sold."
If you have invested with Wells Fargo, Merrill Lynch or with any firm whose unsuitable recommendations of floating-rate bank loan funds, mutual funds or any other unnecessarily risky investments have proven harmful to your financial interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.