When firm's sell mutual fund shares to customers, delivery of the fund prospectus matters and for some that is a tough lesson to learn. Wells Fargo Advisors has just agreed to settle its alleged failure to timely delivery prospectuses to customers in the purchase of mutual funds in 2009.
The Financial Industry Regulatory Authority (FINRA) issued a press release yesterday to announce that the firm has agreed to pay $1 million for prospectus delivery delays. In addition, the firm is settling alleged delays in informing and reporting to customers fully about certain issues involving arbitrations and complaints with mutual fund representatives.
The allegations center around prospectuses for mutual funds that were allegedly delayed from as little as one day and as long as 153 days. The federal securities laws require that these be delivered within three business days after the transaction has occurred.
But the problem for Wells Fargo apparently did not end with delivery issues. According to the allegations in this matter, the outside provider that mails prospectuses for the firm informed Wells Fargo that some customers did not receive them in a timely manner. FINRA alleged that even after learning of this, Wells Fargo did not rectify the situation.
The notice to Wells Fargo was provided in the form of quarterly reports that apparently revealed that a percentage of the mutual fund purchasers had not received timely mailings. Further, the firm received notice in daily reports that delivery had not been accomplished for some customers. The firm did not correct the situation even after receiving more specific notice of this problem.
A tough lesson learned, but the lessons did not end there. The firm also settled alleged violations of FINRA rules in addition to these allegations. FINRA claimed that Wells Fargo "did not promptly report required information to FINRA regarding its current or former representatives."
Specifically, the requirement under FINRA rules that a securities firm ensure that Forms U4 and U5 are current regarding a representative's termination, formal investigation, customer complaints or arbitrations. As part of this matter, FINRA determined that the firm did not update about 8 percent of Forms U4 and over 7 percent of Forms U5 in a timely manner.
The New York securities regulation and enforcement attorneys at Gusrae Kaplan Nusbaum PLLC represent broker-dealers in regulatory and enforcement matters. Our lawyers advise clients and defend industry members in matters involving a broad spectrum of issues before FINRA and other regulatory bodies, including sales practice violations; Forms U4 and U5 reporting violations; Insider trading; Trading issues and many more areas of regulation and enforcement. Contact our law firm to consult with one of our attorneys.
