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

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Thursday, May 5, 2011

FINRA Fines Wells Fargo $1 Million for Late Delivery of Mutual Fund Prospectuses

FINRA fined Wells Fargo Advisors, LLC of St. Louis, $1 million for its failure to deliver prospectuses in a timely manner to customers who purchased mutual funds in 2009, and for delays in reporting material information about its current and former representatives, including arbitrations and complaints involving its representatives.  FINRA found that Wells Fargo failed to deliver prospectuses within three business days of the transaction, as required by federal securities laws, to approximately 934,000 customers who purchased mutual funds in 2009. The customers received their prospectuses from one to 153 days late. Wells Fargo had failed to take corrective measures to ensure timely delivery of the prospectuses after its third-party service provider provided the firm with regular reports indicating that a number of customers had not received the prospectuses on time.

FINRA also found that Wells Fargo did not promptly report required information to FINRA regarding its current or former representatives. Under FINRA rules, a securities firm must ensure that information on its representatives' applications for registration (Forms U4) is kept current in FINRA's Central Registration Depository (CRD). A firm must also ensure that it updates a representative's termination notice (Form U5) after the representative leaves the firm. These forms must be updated within 30 days of the firm learning that a significant event has occurred - including notification of a formal investigation, customer complaints or arbitrations filed against the representative. FINRA found that from July 1, 2008, to June 30, 2009, Wells Fargo failed to update 8.1 percent of their Forms U4 and 7.6 percent of the Forms U5 on time. In total, Wells Fargo filed nearly 190 late amendments to Forms U4 and U5.

In settling this matter, Wells Fargo neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

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