More On Legal & Compliancefrom The Advisor's Professional Library
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
FINRA barred an ex-Wells Fargo advisor (WFC) from the investment industry earlier this week.
Michael Frew, a Bay Area resident, retired from Wells Fargo Advisors in January after the bank opened an internal investigation regarding a client’s attempt to wire money into the advisor’s bank account.
Over the past few months, Frew failed to “fully and accurately respond to a … request for documents and information and refused to appear for testimony requested …. Thereby violating FINRA Rules 8210 and 2010,” the regulatory body said in a document, signed by Frew on Monday.
FINRA started investigating whether he had taken loans from customers or converted customer funds in February. In May, Frew told FINRA that he would not provide any responses and would not appear for testimony.
There are several client disputes in his FINRA records, and now, some investors are seeking to sue the ex-advisor over money they lost investing in some unofficial real estate schemes, according to a report in the San Francisco Chronicle.
Some 20 clients and 10 other investors allege that Frew, 66, “solicited millions of dollars from friends, family and clients that he said would be used by a real estate developer to rehabilitate properties in areas hit by natural disasters.” He promised them payments of 10% to 14% per year.
Suzanne Geer of Pacifica, Calif., told the paper she became a client of Frew’s in 1998 after her husband died. Frew explained to Geer that he knew someone redeveloping property after the Oakland hills fire of 1991.
"I asked who he is. He said, 'Let's just call him Guido,' " Geer told the paper.
"We are still investigating, but we believe this looks like a Ponzi scheme, and there likely was never any investment in these distressed properties," San Francisco attorney Cary Lapidus told the Chronicle.
Lapidus said he plans to file an arbitration claim soon against Wells Fargo Advisors on behalf of certain clients.
"The investigation continues and we are working with clients, industry regulators and law enforcement to gather information concerning Mr. Frew's activity outside of accounts at Wells Fargo," the company said last week in a statement shared with the paper.
Frew passed his securities exam in 1975, according to FINRA BrokerCheck. He worked for Shearson Lehman from April 1988 to May 1998, when he joined Prudential Securities. He was with Pru through July 2003, when it became part of Wachovia.
From July 2003 to May 2009, Frew worked for Wachovia Securities, which was acquired by Wells Fargo in May 2009.
A client in California complained in 2006 about Frew’s actions regarding short positions and options contracts and sought reimbursement of more than $29,200. The Wachovia client claimed he had asked the advisor and his partner to close certain positions, which were left open.
Frew settled the case in May 2006 for $14,500.
Clients requested reimbursement from Frew for various limited partnerships purchased between 1989 and 1990 that resulted in losses of close to $20,700. The clients also disclosed related out-of-pocket losses of $55,900.
This case involved Frew’s actions while he was at Prudential, and the related settlement included reimbursements of $28,200 and $102,200 to each client that had bought shares in the related partnerships. (According to FINRA, some 340,000 Prudential clients submitted claims between 1980 and 1991 due to losses stemming from these partnerships.)
In 1998, a client accused Frew of putting some $23,000 of funds in “unsuitable investments.” FINRA, though, denied the client’s request.
Check out SEC: Accountant Bet Client’s Money at Client’s Casino on ThinkAdvisor.