Wells Settles With FINRA

In April, I wrote a note about Wells Investment Securities coming under scrutiny from FINRA for sales materials related to the Wells Timberland REIT offering.  Investment News had an article last week that appears to report on the conclusion of that investigation.  Wells has been fined $300,000 in conjunction with a letter of acceptance, waiver, and consent related to what FINRA describes as false and misleading marketing materials.  The dispute revolves around the fact that the Wells Timberland did not qualify to be treated as a real estate investment trust until December 31, 2009, and that Wells Timberland held only one property despite stated objectives of diversification.

I am not a Wells apologist, but I think that Wells is the victim of an overly aggressive regulator.  I am familiar with all of the marketing material supporting the timberland offering, nearly from its inception.  It was clear that the the REIT held only the Mead-Westvaco property, and that any diversification would be dependent on raising additional capital, and a lot of it at that.  And the prospectus and financial statements files with the SEC stated frequently that Timberland had not yet qualified a a REIT.  This is a case of failure to execute a business plan due to undercapitalization, not a misstatement of the business plan. 

I think that Wells suffered a little bit from its prior dealings with NASD.  Wells has a history with the regulator, and I think that history had an effect on FINRA's position and its willingness to negotiate.IN this case, it's a shame because it appears that Wells was trying to remain true to its business plan, while executing prudent tactics.