Financial Industry Regulatory Authority, or FINRA, recently reported that representatives from Wells Fargo Advisors, LLC. in St. Louis, Missouri unethically prioritized their own interests above their customers, committing what is commonly called front running.
Stock brokers and wealth advisors are expected to always act in their customer’s best interest, not theirs. Front running, then, is a breach of a fiduciary duty from broker to investor. It also violates FINRA rules.
Common examples include brokers taking advantage of lucrative stock prices by buying shares for their own accounts. Afterwards, the broker then recommends this same stock to their customers. Prima facie, the sneaky transaction may seem generally harmless; however, the broker’s transaction most likely caused a spike in market price. Since this broker did not prioritize his or her customer’s accounts first, the customer’s investments were unknowingly subject to the fate of the broker’s investments.
According to FINRA, Wells Fargo Advisors, LLC. (WFA) unethically administered over 20 instances of such front running. The transactions occurred during two separate time periods — January through March 2012; and April 2013 through June 2013.
When WFA representatives received market orders from customers, they did not execute them, “trading for [their own] account at prices that would have satisfied their customer’s market orders.” Time would pass and — whenever the advisor did get around to placing their orders — the market opportunity would often shift. The brokers would execute the transactions anyway.
The official report also stated that “the firm failed to show the correct execution time and entry time on the memoranda of brokerage orders.” In other words, the representatives doctored the trade blotters, assuming they were in the clear, and thus revealing a corrupt supervisory system. Due to this lax accountability culture at the St. Louis branch — as reported by FINRA — representatives were able to front run their clients for two consecutive years.
Eventually their unethical deeds were uncovered and the firm received a censure and a fine of $35,000. If you’ve been damaged by Wells Fargo Advising, LLC., or by similar brokerage or investment advising firms, the investment fraud attorneys at Investor Defense Law LLP may be able to help you recover your losses.
Investor Defense Law LLP is a law firm dedicated to help investors in CA, GA, and WA recover losses caused by stockbrokers, financial advisors, or investment firms. To learn more, contact an investment fraud attorney at 800.487.4660.