The Financial Industry Regulatory Authority fined Wachovia Securities LLC and First Clearing LLC $1.1 million for failing to provide more than 800,000 required notifications to customers during a five-year period.
Separately, the market regulator awarded damages of $8.9 million against Associated Securities and a broker for investing 16 households in a hedge fund that was allegedly misidentified to the investors.
Finra said the troubles at Wachovia Securities and First Clearing were the result of computer programming and operational problems undetected by the firms' internal controls procedures and supervisors. The notices included notifications of changes in investment objectives and changes of address.
"These notices are an important form of investor protection -- they help protect against changes that are erroneous, unauthorized, or, in the worst case, indicative of an effort to conceal misconduct involving a customer's account," said Finra enforcement chief Susan L. Merrill.
Wachovia was acquired at year's end by Wells Fargo & Co. Wachovia Securities and First Clearing were units of Wachovia at the time of the activity in question.
In the second case, a Finra arbitration panel awarded claimants 100% of the money they invested in the Apex Hedge fund after Associated Securities broker Jeffrey Forrest said it provided safety, security and liquidity of investor principal. In fact, Apex was a highly speculative hedge fund that engaged in risky options trading and was wiped out in 2007.
The panel found that Mr. Forrest's representations to his clients constituted fraud or deceit according to California law. Associated Securities also was found liable because of its failure to properly supervise Mr. Forrest.
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