On June 4, 2013, the Financial Industry Regulatory Authority
(FINRA) announced sanctions imposed against Wells Fargo Advisors and Banc of
America (through its successor Merrill Lynch, Pierce, Fenner & Smith) to
reimburse a total of $3.1 million to more than 450 customers for recommending
unsuitable floating-rate bank loan funds.
In addition, FINRA also imposed fines against the firms of more than $2
million.
Floating-rate bank loan funds are mutual funds that
typically invest in a portfolio of secured senior loans made to entities that
carry below-investment-grade credit. As
a result, the funds are subject to significant credit risks and can be
illiquid.
According to FINRA, brokers at Wells Fargo and Bank of
America recommended that their customers purchase concentrated amounts of the
funds despite their clients having investment objectives and risk profiles that
were inconsistent with the features of floating rate loan funds. Many of the brokers’ customers sought
investments designed to preserve their capital with conservative risk
levels. In contrast, the brokers recommended
the funds without having reasonable grounds to believe that the securities were
suitable for the clients.
The sale of investments that are wholly unsuitable for the
investors carry potentially devastating financial consequences for unsuspecting
clients of brokerage firms. Any investor
who believes he or she has been misled or mistreated by their investment
advisor should contact Block & Landsman for a free, confidential
consultation to determine if they have a claim to make for investment losses
caused by undisclosed risks.
