News reports by Financial Advisor IQ, the Los Angeles Times, and other outlets indicate that the Financial Industry Regulatory Authority (FINRA) has ordered Wells Fargo Advisors to pay a sum of more than $8 million dollars to the former chief executive officer of OfficeMax, the office supplies chain, in connection to Puerto Rico bond investments.
According to the Los Angeles Times, the former officer, Sam Duncan, in 2016 sued Wells Fargo and its broker Marc Rogers over the sales of Puerto Rico bonds which he alleged were unsuitable for his investment profile. He also alleged that Mr. Rogers declined to abide by the firm’s own analysis of Puerto Rico bonds as unsuitable for conservative investment profiles. Mr. Rogers’ bonds were held by a trust established for his children, according to his Times, citing his attorney, who said: ““Rogers knew this was a trust — knew this was money to be invested for future generations… It didn’t take a rocket scientist to know these were risky investments.”
In connection with Mr. Rogers’ lawsuit, a panel of FINRA arbitrators determined that Mr. Rogers and Wells Fargo Advisors owe Mr. Duncan $4.2 million to cover his losses, as well as millions in interest, punitive damages and other costs amounting to $8.6 million. A representative of Wells Fargo Advisors told the Times, “We disagree with the award and we are researching our options.” Mr. Duncan’s lawsuit also named Mr. Rogers’ former firm, RBC Capital Markets, which paid a settlement of $25,000 in May.
Mr. Duncan’s attorneys told the Times that for two years—2012 and 2013—his accounts “managed by Rogers held almost entirely Puerto Rico bonds,” and that “At one point, Duncan held about $12 million worth of the bonds.” They alleged that this was an unsuitable quantity for a conservative investor, and that Mr. Rogers recommended that Mr. Duncan continue holding the assets even after the Puerto Rico debt crisis in 2013 led to a decline in their value. They also alleged that Wells Fargo’s analysts “had flagged the Puerto Rico bonds as inappropriate for conservative investors but that the bank did not ensure Rogers was following those guidelines.”
Wells Fargo’s wealth management unit, the specific department named in Mr. Duncan’s lawsuit, has been the subject of scrutiny by Wells Fargo as well as regulatory authorities. According to the Times, Wells Fargo is currently holding a “review” into whether that unit “has provided improper investment advice to 401(k) retirement account holders and other customers.”