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SEC penalizes Wells Fargo for not disclosing investment risks

August 14, 2012|By E. Scott Reckard

Wells Fargo & Co. and a former vice president have agreed to pay more than $6.5 million to settle federal  accusations that they peddled tricky mortgage-related investments without understanding the complexities of the financial products or disclosing the risks to investors.

The Securities and Exchange Commission said the improper sales were made in 2007 by Wells Fargo Brokerage Services in Minneapolis, now known as Wells Fargo Securities, and specifically by Shawn McMurtry, the vice president who recommended and sold some of the products.

The SEC said Tuesday that the bank and McMurtry settled administrative proceedings without admitting or denying the findings. 

The SEC said Wells Fargo sold asset-backed commercial paper structured with risky mortgage bonds and collateralized debt obligations to several “generally conservative” customers including municipalities and nonprofits. It said customers lost money after three of the investments defaulted.

Instead of determining the true nature of the products and explaining them to the customers, Wells Fargo’s representatives “relied almost exclusively upon their credit ratings,” the SEC said in announcing its allegations Tuesday.

“Municipalities and other nonprofit institutions were harmed because Wells Fargo abdicated its fundamental responsibility as a broker to have a reasonable basis for its investment recommendations to customers,” said Elaine C. Greenberg, head of an SEC municipal securities and public pensions unit.

The case is relatively small. Last month, Wells Fargo, again without admitting guilt, agreed to pay $175 million to settle Justice Department allegations that it discriminated against minority borrowers.

Wells Fargo agreed to pay a $6.5-million civil fine, repay $65,000 in commissions it made on the sales and $16,572 in interest. McMurtry agreed to be suspended from the securities industry for six months and pay a $25,000 penalty.

The bank is “pleased to put this matter behind us,” spokeswoman Elise Wilkinson said. “These issues occurred more than five years ago and pertain to a part of the firm that was completely revamped.”

McMurtry couldn’t be reached for comment.

An administrator contracted by Wells Fargo will identify affected customers, evaluate their claims and distribute the civil fines among them.


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