Background Of Wells Fargo Clearing Services, LLC (CRD)
First Clearing was a FINRA member from May 1986 to November 2016. During the
relevant period, April 2016 through October 2016, First Clearing provided clearing
services for 75 firms and approximately 8.2 million customer accounts. In November
2016, First Clearing merged with Wells Fargo Advisors, LLC, to become Wells Fargo
Clearing Services, LLC. Shortly afterward, First Clearing filed a Form BDW terminating
its FINRA registration.
Respondent does not have any relevant disciplinary history.
Activity(s) Reported – Wells Fargo Clearing Services, LLC
This matter originated from a customer complaint made in August 2016 to FINRA’s
Senior Help Line regarding inconsistent values reflected on her account statements
regarding a REIT she had previously purchased.
Between April 2016 and October 2016, First Clearing distributed more than 6,800
customer account statements containing valuations that did not comply with the
requirements of NASD Rule 2340(c).
Beginning with amendments that took effect on April 11, 2016, NASD Rule 2340(c)
required FINRA members to use either of two approved methodologies when providing
per-share estimated values for DPP and unlisted REIT securities on customer account
statements. In Regulatory Notice 15-02, issued in January 2015, FINRA notified its
members that the Securities and Exchange Commission approved this rule change.
According to Regulatory Notice 15-02, one reason for the April 2016 rule change was to
“require general securities members to provide more accurate per share estimated values
on customer account statements” by using either the “net investment methodology” or the
“appraised value methodology.” The net-investment methodology derives an estimated
per-share value from the amount of a DPP or REIT offering’s proceeds that remain
available for investment, either as stated in the offering prospectus or based on another
equivalent disclosure. The appraised-value methodology, by comparison, draws on the
appraised valuation disclosed in an issuer’s most recent periodic or current report filed
with the SEC.
First Clearing convened an internal working group in the second half of 2015 to address
the rule change. During that process, it learned that it might encounter potential
difficulties in obtaining compliant estimated values for certain DPP and REIT securities
upon implementation of the rule and worked to address that possibility.
During the first few months of 2016, First Clearing obtained much of its valuation data
regarding DPP and REIT securities from third-party vendors. On April 18, 2016, one of
the firm’s third-party valuation vendors sent First Clearing a letter identifying several
dozen DPP and REIT securities for which it was unable to provide rule-compliant, pershare estimated values. A few days later, that vendor provided First Clearing with April
2016 valuation data, which included zeros as valuations for those DPPs and REITs for which compliant valuations were unavailable. Those zeros fed directly into the system
First Clearing used to generate customer-account statements at the end of each month.
When First Clearing created its customer account statements at the end of April 2016,
however, the firm’s security pricing team manually overrode the zeros that the firm’s
third-party valuation vendor had provided for 33 DPP and REIT securities, and instead
populated the April 2016 statements for customers holding those securities with the
valuations that the vendor supplied for those positions the previous month—i.e., before
the rule change. Thus, rather than learning that compliant valuations were not available,
customers who owned one or more of the affected DPPs or REITs received account
statements showing outdated valuations for those holdings. Because those earlier
valuations did not derive from either the net-investment or appraised-value methodology,
they did not comply with Rule 2340(c). In one example, an erroneous account statement
showed the per-share estimated value of a customer’s REIT at $14.72, when the
security’s rule-compliant per-share valuation at the time was approximately $0.90.
First Clearing’s distribution of monthly and quarterly customer account statements with
noncompliant valuations for some DPP and REIT securities continued through October
2016, although the number of securities with noncompliant valuations appearing on such
statements declined to either five or six per month after May 2016, as First Clearing no
longer held certain DPP and REIT positions with non-compliant valuations on its books.
longer held certain DPP and REIT positions with non-compliant valuations on its books.
Overall, from April 2016 through October 2016, First Clearing sent 6,851 monthly and
quarterly account statements to 2,390 account holders containing valuations for 33
discrete DPP and REIT securities that did not comply with the requirements of NASD
Therefore, First Clearing violated NASD Rule 2340(c) and FINRA Rule 2010.2
Between April 2016 and October 2016, First Clearing failed to establish and
maintain a supervisory system, including written supervisory procedures,
reasonably designed to ensure compliance with NASD Rule 2340(c).
FINRA Rule 3110(a) provides that each member “shall establish and maintain a system
to supervise the activities of each associated person that is reasonable designed to achieve
compliance with applicable securities laws and regulations, and with applicable FINRA
In addition, Rule 3110(b)(1) requires each FINRA member to “establish, maintain, and
enforce written procedures to supervise the types of business in which it engages and the
activities of its associated persons that are reasonably designed to achieve compliance
with applicable securities laws and regulations, and with applicable FINRA rules.”
From April 2016 through October 2016, First Clearing did not have a supervisory system
or written procedures reasonably designed to achieve compliance with NASD Rule
2340(c). During that time, the firm failed to ensure that appropriate supervisory personnel
oversaw and reviewed the security pricing team’s activities regarding DPP and REIT
securities. In particular, First Clearing failed to require any supervisory review of
instances in which the security pricing team manually overrode vendor-supplied
valuation data for DPPs and REITs.
Therefore, First Clearing violated FINRA Rules 3110(a), 3110(b), and 2010.
First Clearing violated FINRA Rule 4511, which requires FINRA members to keep
accurate books and records.
FINRA Rule 4511 requires member firms to “make and preserve books and records,” and
that obligation embodies the requirement that those records be accurate. Here, from April
2016 through October 2016, First Clearing failed to maintain accurate books and records
when it created and distributed 6,851 monthly and quarterly account statements that
contained noncompliant valuations for DPP and REIT securities.
Therefore, First Clearing violated FINRA Rules 4511 and 2010.
2 FINRA Rule 2010 requires members to “observe high standards of commercial honor and just and equitable principles of trade.” A violation of NASD Rule 2340 is inconsistent with high standards of commercial honor and just and equitable principles of trade, and is, therefore, also a violation of FINRA Rule 2010.
Penalties And Sanctions
a censure; and a fine of $300,000.
Respondent agrees to pay the monetary sanction upon notice that this AWC has been
accepted and that such payment is due and payable. Respondent has submitted an
Election of Payment form showing the method by which it proposes to pay the fine
Respondent specifically and voluntarily waives any right to claim an inability to pay, now
or at any time hereafter, the monetary sanction imposed in this matter.
The sanctions imposed herein shall be effective on a date set by FINRA staff.
Recent Activity(s)Of The Individual/Firm
From April 2016 through October 2016, First Clearing distributed 6,851 account
statements to customers containing valuation information for one or more Direct
Participation Programs (DPPs) or Real Estate Investment Trusts (REITs) that did not
comply with NASD Rule 2340(c).1 The firm sent these statements containing noncompliant valuations to more than 2,300 customers. During the same period, First
Clearing failed to establish and maintain a supervisory system and written supervisory
procedures reasonably designed to ensure that its customer account statements reflected
DPP and REIT prices derived from a valuation methodology allowed by NASD Rule
2340(c). For the same reasons, the firm also failed to maintain accurate books and records
relating to monthly and quarterly statements for customer accounts containing DPPs and
Through this conduct, First Clearing violated NASD Rule 2340(c) and FINRA Rules 3110(a) and (b), 4511, and 2010.
How To Spot A Fraud Finance Advisor (Infographic)
Help For Victims Of Wells Fargo Clearing Services, LLC
If you have lost funds because of misrepresentation, unsuitable investment, or unsuitable investment strategy from Wells Fargo Clearing Services, LLC. Then you can take legal action and get justice. Fraud, Malpractice & dereliction of duty should not be taken lightly, especially in this industry. We highly suggest that you notify authorities or seek legal action if your financial advisor or brokerage firm fails to abide by FINRA’s rules are regulations.
Financial advisors are regulatory & legally obligated to suggest (recommend) the most suitable investments/investment strategies to their clients. Their suggestions should have their client’s best interests and should be appropriate for their client’s goals and needs. Similarly, the brokerage firm which hires financial advisors also has a regulatory & legal obligation to keep a close watch and supervise their Financial Advisors’ practices & behavior. They need to make sure that the financial advisor is not being manipulative or having an unreasonable bias towards certain investments. If the financial advisor and/or the brokerage firm breaches these duties, then the client/customer may be entitled to a full or partial recovery of their losses.
Financial advisors need to have the interest of their clients when giving suggestions related to investments and investment strategies. Reasonable basis suitability requires the advisor to do their best to analyze & identify the risks and rewards associated with their suggested investment and/or investment strategy.
Wells Fargo Clearing Services, LLC has been involved in fraudulent activities and is an unsafe professional entity. We strongly recommend you avoid any association with such a shady figure.
- Shady Activity
- Swindling Activity Reported By Clients
- Under Govt. Organization's Radar
- High Risk of Fraud