Between August 2005 and July 2012, Wells Fargo Advisors, together with its predecessor, Wachovia Securities sold more than $12 million of Structured Repackaged Asset-Backed Trust Securities or “STRATS” to its retail customer.
Structured Repackaged Asset-Backed Trust Securities
Structured Repackaged Asset-Backed Trust Securities are a complex structured product who return is based upon a floating rate based on the STRATS Trust’s interest in a capital security
issued by JP Morgan Chase and an interest rate swap contract.
Of course the sale of these securities has been a disaster for investors.
However, at least according to the Financial Industry Regulatory Authority, during the relevant period Wachovia Securities and Wells Fargo Advisors failed to educate its registered representatives regarding the risks associated with these securities and as a result, its sales force did not and could not inform retail customers who purchased the STRATS that they could suffer significant losses.
According to FINRA
Wachovia Securities and Wells Fargo Advisors also used internal-use communications regarding the STRATS, which ostensibly was repeated to customer by their brokers but which failed to adequately describe the risks of investing in these complex products and were not fair and balanced.
In addition, FINRA found that Wachovia Securities and Wells Fargo Advisors also failed to
establish and maintain a supervisory system reasonably designed to ensure compliance with
FINRA rules relating to suitability.
FINRA has consistently reminded brokerage firms who sell complex products perform a reasonable basis suitability determination, in accordance with Rule 2310, before recommending such products to retail customers and to train associated persons on the unique features and risks of the structured products. In order to discharge its reasonable basis suitability obligation, brokerage firms must perform appropriate due diligence to ensure an understanding ofthe product’s potential risks and rewards and must educate its registered representatives, and their supervisors, about the characteristics and risks of each structured product before it allows registered persons to sell the product to investors.
Wells Fargo Advisors agreed that it failed to do so, and otherwise consented to FINRA’s finding, and among other things agreed to pay a $500,000 fine.
Investors purchasing Structured Repackaged Asset-Backed Trust Securities or “STRATS” through Wachovia Securities or Wells Fargo Advisors should consult with a lawyer to determine their legal rights.
Guiliano Law Group
Our practice is limited to the representation of investors in claims, for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.
