Wells Fargo Accepts Control Failure Charges, to Pay $5M

Wells Fargo Advisors LLC – the brokerage wing of Wells Fargo & Company (WFC) has been slammed with a fine of $5 million by the Securities and Exchange Commission ('SEC'). SEC alleged that the brokerage unit failed to maintain sufficient controls to prevent an employee from insider trading based on private information of a customer.

The SEC also alleged that Wells Fargo made unreasonable delay in producing related documents in course of the SEC’s investigation and provided “an altered” document related to a compliance review of the broker’s trading.

Wells Fargo violated several federal securities laws that “require broker-dealers and investments advisers to establish, maintain, and enforce policies and procedures reasonably designed to prevent the misuse of material nonpublic information.” The company also violated laws that make necessary for broker-dealers and investment advisers to produce correct documents and records to the SEC in due time.

Notably, Wells Fargo has accepted its wrongdoing and agreed to the penalty payment. Also, it has agreed that an independent consultant would review its policies and procedures.

In 2012, the SEC accused a broker of Wells Fargo Advisors – Waldyr Silva Prado Neto of earning illicit profit before the Burger King acquisition by 3G Capital Partners Ltd. in 2010. Prado had stolen internal information from the brokerage unit’s client who was involved in the deal. Notably, this January, Prado was fined $5.6 million by the SEC.

Per the findings of the SEC’s order, several groups that were accountable for supervision within the company had got hints that the broker was misusing customer information. However, lack of coordination in these groups or absence of proper designation of responsibilities led to the failure to address the issue.

The SEC stated that the regulator’s action marked the “first-ever against a broker-dealer for failing to protect a customer’s material nonpublic information.”

Bottom Line

Though this small settlement has a minimal impact on Wells Fargo’s financials, undoubtedly, it brings some relief to the Wall Street banking giant. Such settlements put an end to lengthy litigations and resolves legacy issues.

Wells Fargo currently holds a Zacks Rank #2 (Buy). Farmers Capital Bank Corp. (FFKT), First Community Bancshares, Inc. (FCBC) and Cardinal Financial Corp. (CFNL) are among the better-ranked stocks in the banking space. All these stocks sport a Zacks Rank #1 (Strong Buy).

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