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Univ. of Toledo College of Law

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Tuesday, March 24, 2009

FINRA Fines Wachovia for Customer Notification Violations

FINRA announced that it fined Wachovia Securities, LLC and First Clearing, LLC, both of St. Louis, MO, $1.1 million for the firms' failure to provide more than 800,000 required notifications to customers over a five-year period ending in 2008. As a part of the settlement with FINRA, the firms are required to retain an independent consultant to review their supervisory systems and processes.   At the time of the activity at issue, Wachovia Securities and First Clearing were both subsidiaries and non-bank affiliates of Wachovia Corporation. On Dec. 31, 2008, Wachovia Corporation was acquired by Wells Fargo & Company.

FINRA found that the failures by Wachovia Securities and First Clearing were the result of various computer programming and operational problems that went undetected by the firms' internal controls procedures and supervisors. Those failures included over 300,000 notifications of changes in investment objectives and approximately 340,000 notifications of changes of address.


FINRA also found that First Clearing failed to send notifications of the existence of clearing agreements to over 54,000 customers and failed to send required margin disclosure statements to more than 50,000 customers. First Clearing also failed to provide customers with trade confirmations for certain bond transactions that accurately reflected the ratings of bonds; failed to provide required information to holders of certain debt, including information about partial call notifications; and, failed to send notifications to customers about certain asset transfers.  In addition, FINRA found that Wachovia Securities and First Clearing failed to have written policies or procedures in place relating to the required notifications and failed to assign supervisory review for various automated mailing systems. FINRA found that the violations went undetected because of the firms' failure to implement appropriate internal controls and testing. FINRA also found that Wachovia Securities and First Clearing failed to establish adequate supervisory systems and procedures relating to the required notifications.

 In settling these matters, Wachovia Securities and First Clearing neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

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