FINRA is Looking into Wells ... Again

On April 10, Investment News had a note that FINRA had made a preliminary decision to recommend disciplinary action against Wells Investment Securities.  The information was contained in a SEC filing by Wells Timberland REIT.  The REIT reported that:

On August 25, 2010, the Enforcement Department of the Financial Industry Regulatory Authority, Inc. (“FINRA”) notified Wells Investment Securities, Inc. (“WIS”), the dealer manager for the initial public offering of common stock of the Registrant and for the Registrant's current follow-on offering, that FINRA had made a preliminary determination that disciplinary action be brought against WIS for (1) using various sales materials related to the Registrant's public offerings that allegedly failed to comply with the content standards of FINRA's advertising rules, (2) allegedly failing to implement its supervisory system in an effective manner in order to achieve compliance with FINRA's advertising rules, and (3) allegedly failing to maintain written supervisory systems and procedures that were reasonably designed to safeguard customer information. FINRA stayed its August notification and requested additional information from WIS regarding its investigation. On March 1, 2011, the FINRA Enforcement Department notified WIS that FINRA had made a preliminary determination to recommend that disciplinary action be brought against WIS for allegedly failing to inform FINRA that the board of directors of the Registrant approved the deferral of the Registrant's election of REIT status, which was done in connection with its acquisition of the Mahrt Timberland in 2007. FINRA also proposed a censure of WIS and a fine. Before FINRA seeks authorization to issue a formal complaint, WIS has the opportunity to provide a statement to FINRA indicating why no disciplinary action should be brought. WIS intends to make such a submission responsive to the issues raised in both the August 2010 and March 2011 notifications on or before April 11, 2011. WIS intends to vigorously defend these charges.

Wells Core Office REIT made a similar filing.

This is the third time that Wells' sales practices have been questioned by FINRA.  In March 2001, Wells entered a written undertakings that it would not violate compensation regulations in conducting sales and due diligence conferences.  In August 2003, Wells consented to sanctions relating to the improper conduct of sales and due diligence conferences.

Wells is a very aggressive sales organization.  That aggressiveness has brought success in raising capital.  Unfortunately, the returns on that capital have been spotty, as a review of Wells' record in liquidated properties and full cycle programs would attest.