This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

FINRA Fines Come Quickly After Warnings

Stocks in this article: BAC WFC

Hal M. Bundrick

NEW YORK ( MainStreet)-- The warning was recent and punishment came quickly. FINRA slammed two firms today with a total of $2.15 million in fines for losses incurred from "unsuitable sales of floating rate bank loan funds."

FINRA Chairman and CEO Richard G. Ketchum tipped his hand that floating rate funds were on his radar in a speech at the self-regulatory authority's recent annual conference.

$3 million in restitution to customers was also levied against the offending firms: Wells Fargo (WFC - Get Report) and Bank of America/Merrill Lynch (BAC - Get Report).

Wells Fargo was ordered to pay a $1.25 million fine and reimburse another $2 million in losses to 239 clients. Merrill Lynch has been slapped with a $900,000 fine as well as reimbursements totaling $1.1 million in losses to 214 customers.

Investors have been piling into floating-rate funds this year, which are baskets of secured senior loans made to firms with below investment-grade credit. In addition to significant credit risks, the funds are thinly traded and often illiquid. As interest rates rise, many of the loans are also callable.

In a statement announcing the fines, FINRA found that Wells Fargo and Bank of America/Merrill Lynch brokers "recommended concentrated purchases of floating-rate bank loan funds to customers whose risk tolerance, investment objectives, and financial conditions were inconsistent with the risks and features of floating-rate loan funds."

FINRA also noted that the customers were seeking to preserve principal, or had conservative risk tolerances.

The agency "also found that the firms failed to train their sales forces regarding the unique risks and characteristics of the funds and failed to reasonably supervise the sales of floating-rate bank loan funds."

"As investors continue to look for yield in a low-interest-rate environment, these actions should serve as a reminder that brokers and their firms need to ensure that investment recommendations are consistent with customers' investment objectives and risk tolerances," said Brad Bennett, FINRA's vice president and chief of enforcement. "Wells Fargo and Bank of America allowed their brokers to sell floating-rate bank loan funds to investors for whom the positions were unsuitable, resulting in significant losses to many customers."

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs