Investors Could Recover Losses for Unsuitable Recommendation of Floating-rate Bank Loan Funds

Securities fraud attorneys are currently investigating claims on behalf of investors who suffered significant losses as the result of an unsuitable recommendation of floating-rate bank loan funds. Earlier this month, the Financial Industry Regulatory Authority announced that it ordered Banc of America and Wells Fargo to pay a fine and restitution for the improper and unsuitable recommendation and sale of floating-rate bank loan funds.

Wells Fargo Advisors LLC was ordered to pay a $1.25 million fine and restitution of approximately $2 million for losses sustained by 239 customers. As Banc of America’s successor, Merrill Lynch, Pierce, Fenner & Smith was ordered to pay a $900,000 fine and restitution of approximately $1.1 million for losses sustained by 214 customers.

Floating-rate bank loan funds can be illiquid and carry significant risks because they invest in loans to entities with below-investment-grade ratings. According to FINRA’s findings, Banc of America and Wells Fargo made recommendations of concentrated purchases of these investments to customers for whom the recommendation was unsuitable. Stock fraud lawyers say that most investors with conservative risk tolerances or who want to conserve principal should not have received a recommendation to invest in a floating-rate bank loan fund.

Vice President and Chief of Enforcement for FINRA, Brad Bennett, said, “As investors continue to look for yield in a low-interest-rate environment, these actions should serve as a reminder that brokers and their firms need to ensure that investment recommendations are consistent with customers’ investment objectives and risk tolerances. Wells Fargo and Banc of America allowed their brokers to sell floating-rate bank loan funds to investors for whom the positions were unsuitable, resulting in significant losses to many customers.”

Furthermore, securities fraud attorneys say FINRA’s findings indicated that the firms did not properly train their sales force on the funds’ unique characteristics and risks.

If you received an unsuitable recommendation to invest in floating-rate bank loan funds from any full-service brokerage firm, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a stock fraud lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 for a no-cost, confidential consultation.