Articles Tagged with Wells Fargo

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According to reporting by the New York Times, troubled bank Wells Fargo may have charged customers overdraft fees for certain closed bank accounts, despite notifying the customers that the accounts were closed and that no transactions would be processed after a given date.

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Despite rules meant to rein in excessive overdraft fees charged by banks, according to information from the Federal Deposit Insurance Corporation (FDIC), overdraft fees are big business.  According to a 2016 FDIC survey, approximately 600 banks included in the data collected $2.7 billion in overdraft fees in the first quarter of 2016 alone.

In 2010, financial institutions were ordered to obtain consent before customers could be charged overdraft fees for ATM and debit card transactions.  Prior to that, customers who attempted to make a debit purchase or a withdrawal that exceeded the amount in their account could potentially have the transaction approved, but be charged an overdraft fee of up to $35 even if they had not authorized an overdraft on the account.

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money blowing in windMassachusetts reportedly has begun an investigation concerning whether Wells Fargo Advisors engaged in unsuitable recommendations, inappropriate referrals, and other actions related to its sales of certain investment products to customers.  Recently, Wells Fargo disclosed that it is evaluating whether its personnel and registered representatives may have made inappropriate recommendations and referrals concerning 401(K) rollovers and alternative investments.

Massachusetts Secretary of the Commonwealth William Galvin said the state would examine Wells Fargo’s own internal probe and wants to ensure that any Massachusetts investors who were impacted by “unsuitable recommendations” would be “made whole.” He noted that while moving investors toward wealth management accounts brings “more revenues to firms,” these accounts are “not suitable for all investors.”

Industry observers say that major stock brokerage firms have increasingly steered customers to accounts with recurring management fees based on a percentage of assets under management, rather than transaction-based commissions. As Barron’s magazine reports, referring clients to managed accounts tends to earn fee-based advisors significantly more over the long term.

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Cage MoneyRecently, the Financial Industry Regulatory Authority (“FINRA”) ordered Wells Fargo & Co. to pay a $3.4 million fine in connection with sales practice issues related to recommendations of volatility-linked exchange-traded funds (“ETFs”) and volatility-linked exchange-traded notes (“ETNs”) to customers.  Specifically, FINRA determined that between July 2010 and May 2012, some Wells Fargo brokers affiliated with the company’s wealth management business recommended that their customers purchase volatility-linked exchange-traded funds (“ETFs”) and volatility-linked exchange-traded notes (“ETNs”) “without fully understanding their risks and features.”  In addition, FINRA indicated that Wells Fargo lacked the appropriate supervisory procedures and safeguards to facilitate sales of the volatility-linked investment products.

By their very nature, volatility-linked investments are designed to return a profit when the market experience choppiness (or volatility) and are not intended for ordinary investors.  In fact, when volatility-linked ETFs began rolling out to retail investors in early 2011, Michael L. Sapir, Chairman and CEO of ProShare Capital Management, stated that “The intended audience for these ETFs are sophisticated investors.”

Investing in a volatility-linked product is a very risky enterprise that is likely only suitable for professional investors seeking to trade on a short-term basis (e.g., several hours or day trading).  Furthermore, because the VIX or so-called ‘fear index’ is not actually tradeable, investors who wish to invest in the VIX must trade derivatives instead (including volatility-linked ETFs and ETNs)- products that are beyond the understanding of ordinary retail investors.

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Investment fraud lawyers are currently investigating claims on behalf of Wells Fargo customers who suffered significant losses in municipal auction-rate securities. On December 24th, a Financial Industry Regulatory Authority (FINRA) arbitration panel ordered Wells Fargo Advisors to buy back $94 million in securities at face value because the adviser allegedly misrepresented the investments, which would have violated the firm’s obligation to fully disclose all the risks of a given investment when making recommendations.

Wells Fargo Ordered to Buy Back $94 Million in Auction-rate Securities

According to Investment News, the award is related to securities purchased since March 2008 by the now-deceased Robert B. Cohen, his family and Hudson News, Cohen’s affiliated business. Reportedly, Cohen’s family has accused Wells Fargo and one of its advisors of misleading and fraudulent statements regarding municipal auction-rate securities.

Reportedly, when the financial crisis struck and investors found these securities difficult to sell, a Wells Fargo advisor allegedly told the Cohens they could earn back their investment within months with relatively high rates of return. According to investment fraud lawyers, a case is still pending against Timothy P. Shannon, a Wells Fargo adviser based in New Jersey. The FINRA panel also denied Wells Fargo’s request to have the dispute expunged from Shannon’s regulatory records.