The Financial Industry Regulatory Authority yesterday announced that it fined Wachovia Securities LLC and First Clearing LLC $1.1 million for failing to provide more than 800,000 notifications to muni bond and other investors over a five-year period ending in 2008.
The self-regulator also required the two St. Louis-based firms to hire an independent consultant to conduct a comprehensive review of the adequacy of the policies, procedures, testing, and systems they adopted in response to the enforcement action. The consultant is to submit a written report to the firms and FINRA.
FINRA found that the firm's failures resulted from computer programming and operational problems that went undetected by their internal controls procedures and supervisors.
The failures included 300,000 notifications of changes in investment objectives and 340,000 notifications of changes of address.
FINRA also found that First Clearing failed to provide required information to holders of municipal and corporate debt, including information about partial call notifications. The firm also did not provide customers with accurate bond ratings on trade confirmations, the self-regulator said.
"These notices are an important form of investor protection - they help protect against charges that are erroneous, unauthorized, or, in the worst case, indicative of an effort to conceal misconduct involving a customer's account," said Susan Merrill, FINRA executive vice president and chief of enforcement. "It is crucial that firms meet their customer notification obligations.
The two firms were both affiliates of Wachovia Corp., which was acquired by Wells Fargo on Dec. 31, 2008. They neither admitted nor denied the charges, but consented to the reporting of FINRA's findings.
A spokesperson for Wachovia declined to comment yesterday other than to say, "We are glad to have this behind us."