Background Of Wells Fargo Clearing Services, LLC (CRD)
Wells Fargo Clearing Services was a FINRA member from May 1986 to November 2016. During the
relevant period, April 2016 through October 2016, Wells Fargo Clearing Services provided clearing
services for 75 firms and approximately 8.2 million customer accounts. In November
2016, Wells Fargo Clearing Services merged with Wells Fargo Clearing Services Advisors, LLC, to become Wells Fargo
Wells Fargo Clearing Services, LLC. Shortly afterward, First Clearing filed a Form BDW terminating
its FINRA registration.
Wells Fargo Clearing Services does not have any relevant disciplinary history.
Activity(s) Reported – Wells Fargo Clearing Services, LLC
Wells Fargo Clearing Services 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 number 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.
Wells Fargo Clearing Services convened an internal working group in the second half of 2015 to address
the rule change. During that process, Wells Fargo Clearing Services 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, Wells Fargo Clearing Services 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 Wells Fargo Clearing Serviceshttps://www.tradepmr.com/clearing-and-execution-services a letter identifying several
dozen DPP and REIT securities for which it was unable to provide rule-compliant, per share 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 is 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
Rule 2340(c).
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 reasonably designed to achieve
compliance with applicable securities laws and regulations, and with applicable FINRA
rules.”
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 non-compliant 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.
Can you expose the broker trying to trick you?
FINRA offers the free web tool BrokerCheck, which allows users to check a broker’s credentials, registration, and employment history. The disclosure part of BrokerCheck includes information on client conflicts, disciplinary proceedings, and specific financial and legal issues on the broker’s record.
Penalties And Sanctions
a censure; and a fine of $300,000.
Wells Fargo Clearing Services 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
imposed.
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
REITs.
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.
Read more about Slock.it
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.
Dr. Henrique Duck, PhD in Media Studies and Critical Theory, specializes in writing detailed critics stories and reviews. He has contributed to prominent newspapers and websites, providing insightful analysis of media content and its effects on society.
Company does business with Wells Fargo/ first clearing cannot access account no help from hennion&walsh or Wells fargo
Unfortunately this is not all:
BACKGROUND
Respondent has been a member of FINRA since July 1987. Respondent has its
headquarters in St. Louis, Missouri, and is the successor to several FINRA member firms,
including Wells Fargo Advisors, LLC. Respondent has approximately 25,000 registered
representatives and approximately 6,000 branches nationwide. Respondent does not have
any relevant disciplinary history.
OVERVIEW
From October 1, 2016, through June 12, 2018, Respondent failed to make accurate order
memoranda in violation of Rule 17a-3(a)(6) under the Securities Exchange Act of 1934
and FINRA Rules 4511 and 2010, and transmitted inaccurate reports to the Order Audit
Trail System (OATS) in violation of FINRA Rules 7450 and 2010.
FACTS AND VIOLATIVE CONDUCT
1. Exchange Act Rule 17a-3(a)(6) requires broker-dealers to make and keep a
memorandum of each brokerage order given or received for the purchase or sale of
securities, except the purchase or sale of a security-based swap, whether executed or
unexecuted. Among other things, the memorandum must show the time the order was
received. The obligation to make and keep records current inherently includes the
requirement that such records be accurate.
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2. FINRA Rule 4511(a) requires “[m]embers [to] make and preserve books and records
as required under the FINRA rules, the Exchange Act and applicable Exchange Act
rules.”
3. FINRA Rule 7450(a) provides that all applicable order information required to be
recorded under FINRA Rule 7440 shall be transmitted to OATS. FINRA
Rule 7440(b) states that the order origination or receipt time is the time the order is
received from the customer, and Rule 7440(b)(16) requires firms to record the date
and time an order is received. FINRA Rule 7440(b)(18) requires firms to report the
type of account for which the order is submitted. FINRA uses order information from
OATS to conduct surveillance and investigations of member firms for violations of
numerous FINRA rules and federal securities laws. Inaccurate order receipt times in
OATS submissions can interfere with these functions.
4. FINRA Rule 2010 requires a member, in the conduct of its business, to observe high
standards of commercial honor and just and equitable principles of trade. A violation
of the Exchange Act or another FINRA rule constitutes a violation of FINRA Rule
2010.
5. From October 1, 2016, through June 12, 2018, Respondent failed to make and
preserve accurate books and records as prescribed by Exchange Act Rule 17a-3(a)(6)
and FINRA Rule 4511. Specifically, the firm failed to record an accurate order receipt
time in certain situations when registered representatives entered the order receipt
time manually. Generally, orders were entered into the firm’s system immediately
upon receipt from the customer, and the system automatically appended the order
receipt time and order entry time to the order record. In some instances, when the
order was not immediately entered into the firm’s system, the registered
representative first had to record the order on paper, and then enter all the terms and
conditions, including manually entering the order receipt time, into the system. The
most common examples of these instances occurred when large orders required
approval, or other unique situations where, after receiving the order from the
customer, the registered representative had to seek approval from his or her manager
or others before entering the order into the firm’s system. In these instances, some
registered representatives entered inaccurate order receipt times into the firm’s
system.
6. Respondent’s registered representatives entered inaccurate order receipt times in
different ways. Although OATS requires reporting in eastern military time, some of
Respondent’s registered representatives entered order times reflecting another time
zone or in 12-hour time. In addition, some of Respondent’s registered representatives
entered orders with “00” seconds in the time stamp when “00” seconds was
inaccurate.
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7. Respondent recorded inaccurate order receipt times on 114,394 order memoranda.
8. By virtue of the foregoing, Respondent violated Exchange Act Rule 17a-3(a)(6) and
FINRA Rules 4511 and 2010.
9. In addition, Respondent populated the order receipt time field in its OATS
submissions with the time that was entered in its order management system. Thus, the
inclusion of inaccurate receipt times in Respondent’s system also caused the firm to
submit 114,394 inaccurate submissions to OATS. By virtue of the foregoing,
Respondent violated FINRA Rules 7450 and 2010.
10. During the fourth quarter of 2016, Respondent also failed to report a desk receipt time
stamp to OATS in 38 instances out of a sample of 50. The failure to report was
caused by an automation issue; Respondent’s system was not set up to report desk
receipt times to OATS. By virtue of the foregoing, Respondent violated FINRA Rules
7450 and 2010.
11. Finally, during the fourth quarter of 2016, for seven orders out of a sample of 50,
Respondent reported the orders to OATS with an Account Type Code “X,” which is
used when an order is originated in a firm’s error account. These instances involved
trade corrections of customer orders, but Respondent failed to submit reports with the
Account Type Code “I” for the customer orders that were corrected. Based on OATS
guidance issued by FINRA, in situations involving the use of the error account to
rectify an error made in the handling of a customer order, firms must submit both a
report with the Account Type Code “I” for the customer order and a report with the
Account Type Code “X” for the order entered or executed for the firm’s error
account. By virtue of the foregoing, Respondent violated FINRA Rules 7450 and
2010 in seven separate and distinct instances.
B. Respondent also consents to the imposition of the following sanctions:
a censure and
a fine of $75,000.
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
imposed.
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 in this AWC shall be effective on a date set by FINRA.