June 4, 2013
WASHINGTON (AP) — The Financial Industry Regulatory Authority has ordered Bank of America Corp. and Wells Fargo & Co. to pay fines and restitution to settle charges that investor clients were pushed into investments that were inconsistent with their risk preferences.
The industry watchdog said Tuesday that it fined Wells Fargo Advisors LLC, the successor to Wells Fargo Investments, $1.25 million and ordered it to reimburse roughly $2 million in losses to 239 customers.
FINRA also slapped Merrill Lynch, Pierce, Fenner & Smith Inc. — BofA's broker-dealer and successor to Banc of America Investment Services Inc. — with a $900,000 fine and ordered it to pay $1.1 million to reimburse losses incurred by 214 customers.
FINRA officials found that brokers for the lenders' investment subsidiaries had recommended their customers buy floating-rate bank loan funds.
Those funds are mutual funds that generally invest in a portfolio of secured senior loans made to borrowers with below investment-grade credit. As a result, those funds are subject to significant credit risk, FINRA noted.
The watchdog found that customers' tolerance for investment risk, investment objectives and financial conditions were inconsistent with the risks and features of the floating-rate funds that their brokers were recommending.
And yet, the brokers recommended buying floating-rate loan funds without having reasonable grounds to believe that the purchases were suitable for the customers, FINRA concluded.
FINRA also found that the firms failed to train their sales forces about the funds' risks, and failed to reasonably supervise the funds' sales.
In agreeing to the settlement terms, Wells Fargo and Bank of America neither admitted nor denied the charges.
A spokesman for Bank of America of Charlotte, N.C., said the lender was pleased to resolve the matter.
Separately, Wells Fargo, San Francisco, noted that the settlement resolves an issue related to activities that took place between 2007 and 2008 before Wells Fargo Investments merged into Wells Fargo Advisors.
Wells Fargo shares ended regular trading down 29 cents at $40.44. The stock added 5 cents to $40.49 in extended trading.
Shares in Bank of America closed lower in regular trading, slipping 19 cents to $13.36.
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