Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, June 25, 2009

FINRA Fines Wachovia $1.4 Million for Prospectus Delivery Failures

FINRA announced today that it fined Wachovia Securities, LLC $1.4 million for its failure to deliver prospectuses and product descriptions to customers who purchased various investment products from July 2003 through December 2004 and for related supervisory failures.  FINRA found widespread deficiencies relating to the delivery of prospectuses in connection with certain classes of securities: exchange-traded funds (ETFs), collateral mortgage obligations (CMOs), auction market preferred securities, corporate debt securities, preferred stocks, mutual funds, alternative investment securities, equity syndicate initial public offerings (IPOs) and secondary purchases of equity non-syndicate initial public offerings.

 FINRA's investigation showed that the firm failed to deliver the required prospectuses to customers in approximately 6,000 of approximately 22,000 transactions effected between July 2003 and December 2004. The market value of these 6,000 transactions was approximately $256 million.  The firm's failures to deliver prospectuses resulted from multiple causes, including coding errors, failures by certain business units to notify the firm's operations department that a prospectus was required to be delivered, and a failure to monitor and supervise the activities of its outside vendor contracted to deliver the prospectuses. FINRA also found that Wachovia Securities had failed to have adequate supervisory systems and policies and procedures in place to ensure that customers who purchased these investment products received prospectuses.

 In settling this matter, Wachovia Securities neither admitted nor denied the charges, but consented to the entry of FINRA's findings. As part of the settlement, a senior officer of the firm will certify that it has adopted and implemented systems and procedures reasonably designed to achieve compliance with federal securities laws and FINRA rules applicable to the delivery of prospectuses and product descriptions.

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