The Financial Industry Regulatory Authority (FINRA) recently sanctioned Wells Fargo Advisors, LLC (Wells Fargo) and imposed a $150,000 fine over allegations that the firm failed to establish, maintain and enforce a supervisory system that was reasonably designed to adequately review and monitor the transmittal of funds from the accounts of customers to third party accounts in violation of NASD Rules 3010, 3012(a)(2)(B)(i) and FINRA Rule 2010.
Wells Fargo is a FINRA member and a full service broker-dealer with its principal offices located in St. Louis, Missouri. Wells Fargo employs over 20,000 registered individuals and maintains over 7,000 registered locations.
Under FINRA Rule 3010, a brokerage firm owes a duty to properly monitor and supervise its employees. The rule states that “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative…that is reasonably designed to achieve compliance with applicable securities laws and regulations…”
Brokerage firms have an obligation to respond to indications of irregularity also referred to as “red flags” indicating potential misconduct. A supervisor cannot ignore or disregard red flags and must act decisively to detect and prevent improper activity. The importance of proper supervision is manifested in various types of securities activities.
NASD Rule 3012 requires firms to establish, maintain, and enforce written supervisory control policies and procedures which address a variety of securities activities. Among other things, firms must test and verify that their supervisory procedures are sufficient and amend or create additional supervisory procedures when needed. NASD Rule 3012(a)(2)(B)(i) provides that a member shall have procedures that are reasonably designed to review and monitor all transmittal of funds or securities from the accounts of customers to third party accounts and outside entities, including banks.
Specifically, FINRA alleged that Wells Fargo’s supervisory system failed to monitor for the disbursement of funds from two unrelated customers’ accounts to identical outside third party accounts and from an employee’s account to the same outside bank. FINRA found that registered representative Patricia Rodriguez (Rodriguez) converted approximately $258,000 from two customers by forging letters of authorization (LOA) that led to 28 fraudulent outgoing wire transfers. According to FINRA, the disbursements ranged in size from $7,000 to $16,000 and Wells Fargo’s records reflected 16 disbursement instances from Wells Fargo customers to Rodriguez’s joint bank account that she held with her husband. The same account also received wire transfers from Rodriguez’s own Wells Fargo IRA brokerage account. In 12 instances the outgoing funds were disbursed to a bank account in the name of Rodriguez’s son.
FINRA found that Wells Fargo’s supervisory control system failed to include a policy or procedure requiring a review to detect or prevent multiple transmittals of funds from multiple customers going to the same third party accounts. FINRA concluded that Wells Fargo’s supervisory failure resulted in the failure to detect that Rodriguez had initiated fund transfers totaling approximately $258,000, out of two customer accounts to bank accounts that she or her family member apparently controlled.
The attorneys at Gana LLP are experienced in investigating claims of involving a brokerage firm’s failure to supervise. Our attorneys can help you detect and uncover suspicious activity in your accounts. Our consultations are free of charge and the firm is only compensated if you recover.