The Financial Industry Regulatory Authority (FINRA) announced on June 25 that it had fined Wachovia Securities, LLC of St. Louis $1.4 million for the firm’s failure to deliver prospectuses and product descriptions to customers who purchased various investment products from July 2003 through December 2004. FINRA also cited Wachovia for related supervisory failures.

Specifically, FINRA found widespread deficiencies relating to the delivery of prospectuses for certain classes of securities, including exchange-traded funds (ETFs), collateral mortgage obligations (CMOs), auction-rate market preferred securities, corporate debt securities, preferred stocks, mutual funds, alternative investment securities, equity syndicate initial public offerings (IPOs) and secondary purchases of equity non-syndicate initial public offerings.

FINRA’s investigation of Wachovia showed that it failed to deliver the required prospectuses to customers in approximately 6,000 of approximately 22,000 transactions occurring between July 2003 and December 2004. The market value of the 6,000 transactions was approximately $256 million, according to FINRA.

At the time the activity at issue took place, Wachovia Securities, LLC was a subsidiary and non-bank affiliate of Wachovia Corporation. On Jan. 1, 2009, Wachovia Corporation merged with Wells Fargo & Company.

The June 2007 meltdown of Brookstreet Securities may finally produce some justice for more than 750 clients who were left with questions and massive financial losses because of bad bets placed by the Irvine, California-based brokerage on risky collateral mortgage obligations (CMOs).

On May 28, 2009, the Securities and Exchange Commission (SEC) filed fraud charges against 10 former Brookstreet brokers for allegedly disguising the risks of the CMOs and portraying them as conservative, fixed-income investments. The investments were later heavily margined, which ultimately caused Brookstreet’s clients to suffer millions of dollars in losses. Meanwhile, the SEC contends the brokers who sold the risky investments as conservative products pocketed millions of dollars in commissions and salaries.

Seven other brokers from the now-defunct Brookstreet firm face similar charges by the Financial Industry Regulatory Authority (FINRA). 

Before it was forced to close its doors two years ago, Brookstreet Securities touted itself as a new kind brokerage firm dedicated to personalized service and innovative technology - a place where clients would find virtually unlimited investment choices designed to grow and protect their savings.

Far from growing or protecting their savings, many clients discovered an altogether different scenario in 2007 after the value of their investments in collateral mortgage obligations was heavily marked down, leaving them with little recourse. They either had to meet immediate and large margin calls or lose their entire investments.

As reported May 28, 2009, by the Registered Rep, the SEC complaint alleges that the 10 brokers named in its case earned $18 million in commissions and salaries from CMO sales while investors suffered more than $36 million in losses on their investments.