Wells Fargo fined by Finra for unsuitable reverse convertibles sales

By Angela McDaniels

Tacoma, Wash., Dec. 15 - The Financial Industry Regulatory Authority fined Wells Fargo Investments, LLC for unsuitable sales of reverse convertible securities, according to a Finra news release.

The fine, $2 million, is also for failing to provide sales charge discounts on unit investment trust transactions to eligible customers.

Finra also found that Wells Fargo had insufficient systems and procedures to monitor for unsuitable reverse convertible sales.

As part of the settlement, the firm is required to pay restitution to some customers found to have unsuitable reverse convertible transactions.

Finra also filed a complaint against Alfred Chi Chen, the former Wells Fargo registered representative who recommended and sold the unsuitable reverse convertibles. According to Finra, he also made unauthorized trades in several customer accounts, including accounts of deceased customers.

Finra found that Chen recommended hundreds of unsuitable reverse convertible investments to 21 clients, most of whom were elderly and/or had limited investment experience and low risk tolerance. Fifteen of the 21 customers were more than 80 years old.

As of June 2008, Chen had 172 accounts that held reverse convertibles. According to Finra, 148 of those accounts had concentrations greater than 50% of their total account holdings and 46 had concentrations greater than 90%.

Wells Fargo consented to the entry of Finra's findings, but it did not admit or deny the charges.

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