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Monthly Archives: October 2017

FINRA Orders Wells Fargo to Pay $3.4 Million of Restitution to Customers for Unsuitable Recommendations of Volatility-Linked Exchange-Traded Products (ETPs) and Related Supervisory Failures

On October 16, 2017, the Financial Industry Regulatory Authority, Inc. (“FINRA”) announced that it had ordered Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC to pay more than $3.4 million in restitution to affected customers for unsuitable recommendations of volatility-linked exchange-traded products (ETPs) and related supervisory failures.

FINRA found that between July 1, 2010, and May 1, 2012, certain Wells Fargo registered representatives recommended volatility-linked ETPs without fully understanding their risks and features.

As noted by FINRA, “[v]olatility-linked ETPs are complex products that could be misunderstood and improperly sold by registered representatives. Certain Wells Fargo representatives mistakenly believed that the products could be used as a long-term hedge on their customers’ equity positions in the event of a market downturn. In fact, volatility-linked ETPs are generally short-term trading products that degrade significantly over time and should not be used as part of a long-term buy-and-hold investment strategy.”

In view of the “unique features and risks of volatility-linked ETPs,” FINRA has also issued Regulatory Notice 17-32 “to remind firms of their sales practice obligations relating to these products” which cautions and reminds firms who solicit the sale of volatility ETPs to “be well aware of the unique risks that they pose” including the risk that “many volatility-linked ETPs are highly likely to lose value over time” which may render them “unsuitable for certain retail investors, particularly those who plan to use them as traditional buy-and-hold investments.”

FINRA also “found that Wells Fargo failed to implement a reasonable system to supervise solicited sales of these products during the relevant time period.”

If you are an individual or institutional investor who has any concerns about your investments with Wells Fargo or volatility-linked exchange-traded products (ETPs) purchased through any other brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

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