Recently, the Financial Industry Regulatory Authority (FINRA) announced that it has settled two separate and unrelated enforcement matters involving Barclays Capital Inc. (Barclays) and Wells Fargo Investments, LLC, (Wells Fargo) which together resulted in fines totaling about $5 million.
The matter involving Barclays which was settled for $3 million, centered around allegations that the firm misrepresented delinquency data with regard to certain investments and provided inadequate supervision with regard to their offering and sale. The Securities Lawyer Blog has posted on other matters in the recent past involving failures to adequately supervise as alleged in regulatory and enforcement actions.
The Barclays matter and settlement involved the issuance of residential subprime mortgage securitizations (RMBS). FINRA alleged that for a period of about three years, from 2007 through 2010, the firm allegedly misrepresented the historical delinquency rates for certain subprime RMBS that it offered. Noting that "historical delinquency rates are material to investors," both in assessing RMBS value and potential future returns based on the potential for mortgage payment failures, the firm allegedly misrepresented these rates for three of the RMBS underwritten and sold by Barclays.
Specifically, FINRA claimed that the firm posted delinquency data on its website that was inaccurate. The errors in this historical information was said to have been significant, so much so that it could impact investor's ability to evaluate the investment value and "subsequent securitizations."
The issue related to supervision involved FINRA's allegation that the firm did not have in place a system that would ensure that its website disclosures were maintained and updated. Without supervision of these critical components, the delinquency data could well be inaccurate, making it difficult if not impossible for investors to assess future RMBS investment performance.
The matter involving Wells Fargo, which was settled for $2 million, involved alleged activities with regard to one broker and 21 of the firm's customers. The firm was alleged through this broker to have provided "unsuitable sales of reverse convertible securities." In addition, it was also alleged that customers eligible for sales charge discounts on Unit Investment Trust (UIT) transactions were not provided those discounts. Under the settlement, these customers will now be given restitution for the non-payment of discounts and the unsuitable transactions.
FINRA also filed a complaint against the registered representative who was alleged to have been involved in the recommendation and sale of unsuitable reverse convertibles. He was also alleged to have been involved in dealing improperly with customer accounts, including deceased customers, and making unauthorized trades. These investments were recommended to the very elderly (many over the age of 80) and low-risk tolerance investors and were held in disproportionately high concentrations in these accounts.
The lawyers of Wall Street's Gusrae Kaplan Nusbaum PLLC, are experienced advisors to firms and broker-dealers in all areas of compliance and representation. Contact our law firm for more information on our wide range of services, including regulatory and enforcement representation, broker-dealer advisory services and securities litigation. We are a firm comprised of experienced former senior level regulators and securities and compliance litigators, providing advisory and litigation services and representation before all regulatory agencies.
