First Clearing LLC (now known as (Wells Fargo Clearing Services LLC) has been censured and fined $300,000.00 by Financial Industry Regulatory Authority (FINRA) based upon findings that First Clearing provided 6,800 customers with wrong valuations on direct participation program interests and non-traded real estate investment trusts and had failed to supervise its business with a view towards ensuring that customers received correct valuations of their alternative investment holdings. Letter of Acceptance Waiver and Consent No. 2016051352401 (Nov. 4, 2020).
According to the AWC, FINRA received word of First Clearing’s valuation problems when a customer filed a complaint in August of 2016 in regard to the value of a real estate investment trust listed on the customer’s statement.
FINRA stated that from April of 2016 to October of 2016, at least 6,851 monthly and quarterly account statements sent to 2,390 account holders had contained wrong information for 33 real estate investment trust products and direct participation program products. Customers received valuations that did not contain an appraised-value methodology or net-investment methodology. In one case, the customer’s account statement showed that a real estate investment trust contained a per-share value of $14.72 when the value per-share was actually $0.90.
FINRA found that First Clearing violated FINRA Rule 2010 and National Association of Securities Dealers (NASD) Rule 2340(c).
FINRA also stated that from April of 2016 to October of 2016, there was no adequate supervision system or written supervisory procedures used by First Allied to ensure that it got the pricing of these alternative investments correct. There was no supervisory review in cases where a pricing team overrode investment values that First Allied received from its vendors. FINRA found First Allied to be in violation of FINRA Rules 2010, 3110(a) and 3110(b). The securities broker dealer also failed to keep accurate records given the inaccurate account statements violating Rules 2010 and 4511.