Wells Fargo has agreed to pay $6.5 million to settle SEC charges that its brokerage firm improperly sold mortgage-backed securities to municipalities, non-profits and other customers.
The SEC alleged in charges filed today that Wells Fargo and a former vice president Shawn McMurtry sold the securities -- which were the focal point of the great financial collapse of 2008 -- without fully understanding their complexity or disclosing the risks to investors.
In selling the products, Wells Fargo failed to do adequate due diligence and relied almost exclusively upon their credit ratings, according to the SEC, which noted that the Wells Fargo sold the risky products to investors with generally conservative investment objectives.
"Broker-dealers must do their homework before recommending complex investments to their customers," said Elaine C. Greenberg, chief of the SEC Enforcement Division's Municipal Securities and Public Pensions Unit. "Municipalities and other non-profit institutions were harmed because Wells Fargo abdicated its fundamental responsibility as a broker to have a reasonable basis for its investment recommendations to customers."
The sales took place between January and August in 2007, at a time when mortgage-backed securities were an extremely popular and profitable derivative product on Wall Street. The collapse in value of the underlying assets, however, led to a financial crisis in 2008 that impacted financial markets across the world and led to a U.S. recession.
Wells Fargo and McMurtry consented to the SEC's order without admitting or denying the findings. Wells Fargo agreed to pay a $6.5 million penalty, $65,000 in disgorgement, and $16,571.96 in prejudgment interest. McMurtry agreed to be suspended from the securities industry for six months and pay a $25,000 penalty.
-Raymond Fazzi