Wells Clearing Unit Fined $300K for Sending Wrong REIT Valuations
A complaint from an elderly investor about inconsistent valuations of a real estate investment trust led to a regulatory investigation that has cost a Wells Fargo securities clearing unit a censure and $300,000 fine.
A third-party vendor was unable to provide compliant values when the rule went into effect, leading First Clearing’s securities pricing unit to manually override the zeros the vendor provided for 33 discrete securities and replace them with valuations from an earlier month that were not calculated according to approved methods, Finra’s enforcement unit said.
The rule, requiring firms to use either a “net investment” or “appraised value” methodology, was passed to increase transparency for retail investors in the illiquid, often high-commission products.
“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,” Finra said.
The inaccuracies, which occurred between April and the end of October 2016, declined over the period as the underlying DPP and REIT positions declined, according to the consent letter.
First Clearing, a trade name of Wells Fargo Clearing Services, accepted the fine and censure without admitting or denying Finra’s findings that it violated failure-to-supervise and books-and-record accuracy rules. A Wells Fargo spokeswoman said she could not immediately comment on the fine.
The correspondent clearing unit of Wells Fargo Advisors provided services to 75 brokerage firms with about 8.2 million customer accounts at the time of the violations, according to the consent letter. It did not name the firm or firms whose customers received inaccurate statements, nor say whether any direct customers of Wells were involved.
“Wells Fargo Advisors is committed to helping our clients achieve their investment goals, and we take our regulatory responsibilities seriously,” Jackie Knolhoff, a company spokeswoman, said in an email. “This matter refers to an older issue and we are pleased to have it resolved.”