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FINRA Fining Banks for Selling Derivatives to Elderly Investors


New York, NY: Financial Industry Regulatory Authority (FINRA) has fined Wells Fargo & Co. (WFC) $2 million for failing to supervise the sale of a type of securities called derivatives to elderly investors by the company's top salesman.

Alfred Chi Chen, 64, reportedly sold hundreds of reverse convertibles to these customers, generating over $1 million in commissions in 2008 alone. Reverse convertibles are short-term bonds that convert to stock if a company's share price plummets, Bloomberg reports. Chen also made unauthorized trades with several customer accounts, including accounts belonging to deceased customers.

In a report released by the Securities and Exchange Commission (SEC) in July, which contained the results of an investigation undertaken by the commission into structured investment products, the SEC noted that brokers may have taken advantage of some investors. Carlo di Florio, director of the office of compliance inspections and examinations, said in a statement at the time that the regulator was monitoring the market and "considering additional steps."(Bloomberg)

In April, FINRA, which is deputized by the SEC to oversee the brokerage industry, fined Banco Santander SA $2 million for improper sales of reverse convertibles. In 2010 FINRA penalized Ferris, Baker Watts LLC and H&R Block Financial Advisors Inc. over the securities.

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Published on Dec-19-11


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