By Dave Michaels
WASHINGTON — Wells Fargo & Co. agreed to pay $35 million to settle regulatory claims that its financial advisers recommended exchange-traded funds that were too risky for some clients.
The Securities and Exchange Commission’s investigation targeted Wells Fargo’s sale of inverse ETFs, a type of fund that moves in the opposite direction of an index it tracks. Inverse ETFs can be used to hedge other positions or bet on a falling market, but the products are complex enough that regulators have warned for years they are unsuitable for many individual investors.
The sanction follows on an earlier blemish for similar conduct in 2012, when Wells Fargo paid $2.7 million to the brokerage industry’s self-regulator for selling inverse and leveraged ETFs without reasonable supervision. The SEC’s settlement order said Wells Fargo updated its policies for selling the products in 2012, but the controls still weren’t sufficient.
The deal comes one week after Wells Fargo (NYS:WFC) resolved a bigger regulatory cloud, a multiyear investigation into how low-level employees who were stressed by high sales goals opened fake and unauthorized bank accounts. Wells Fargo paid $3 billion to settle those allegations.
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