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Published On: Tue, Aug 14th, 2012

Wells Fargo pays $6.5 million in SEC settlement

Wells Fargo will pay $6.5 million to settle charges that it failed to disclose the risks of complex investments it sold to municipalities, non-profits and other customers, the Securities and Exchange Commission said Tuesday.

photo/Vercillo

In 2007 Wells Fargo recommended that its institutional clients, typically interested in more conservative investments, buy into complex investments tied to high-risk mortgage-backed securities.

Wells Fargo staff made these recommendations without understanding “the true nature, risks, and volatility behind these products,” the SEC said.

The SEC said that Wells Fargo’s brokerage unit based in Minneapolis agreed to settle the case without admitting or denying the charges. It will pay a $6.5 million penalty, plus $65,000 in disgorgement and more than $16,000 in prejudgment interest.

The money will go into a fair fund to help harmed investors.

Shawn McMurtry, a former Wells Fargo vice president who recommended and sold some of the products, will pay a $25,000 penalty and serve a six-month ban from the securities industry as part of the settlement.

“These issues occurred more than five years ago and pertain to a part of the firm that was completely revamped after the merger with Wachovia. We are pleased to put this matter behind us,” said Wells Fargo spokeswoman Elise Wilkinson.

In selling these risky products to municipalities and non-profits, the SEC said Wells Fargo “relied almost exclusively on the credit-ratings of these products” and did not properly review the private placement documentation to better understand the risks.

Credit-rating agencies such as Standard & Poor’s and Moody’s have since been blamed by critics for helping to fuel the 2007-2009 financial crisis by giving overly rosy ratings to complex products tied to subprime mortgages that later soured.

 

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About the Author

- Writer and Co-Founder of The Global Dispatch, Brandon has been covering news, offering commentary for years, beginning professionally in 2003 on Crazed Fanboy before expanding into other blogs and sites. Appearing on several radio shows, Brandon has hosted Dispatch Radio, written his first novel (The Rise of the Templar) and completed the three years Global University program in Ministerial Studies to be a pastor. To Contact Brandon email [email protected] ATTN: BRANDON

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