Erez Law recently filed a $630,000 FINRA arbitration against Wells Fargo for Puerto Rico bond losses. Their customers allege that Ralph Bianchi (CRD# 1513063) and Samuel Cannon (CRD# 1513838), who were registered representatives of Wells Fargo, made unsuitable investments in Puerto Rico bonds between 2013 through 2017.
The customers were risk averse retirees who were seeking to preserve their irreplaceable retirement savings, which represented the vast majority of their irreplaceable savings. The customers informed Bianchi and Cannon that they were primarily interested in investments that would generate tax-free income while preserving their irreplaceable savings and principal. However, Bianchi and/or Cannon incorrectly recorded the customers’ investment objectives as “Long Term” growth. Bianchi and Cannon correctly recorded the customers’ time horizon as “Immediate (Less than 1 year)”, which is inconsistent with their incorrectly recorded investment objective of “Long Term” growth.
Regrettably, despite the customers’ desire to preserve their principal and aversion to high risk investments or strategies, it is alleged that Wells Fargo recommended high risk investments and strategies with disastrous results.
Erez Law alleges that Wells Fargo recommended a speculative and unsuitable strategy of concentrating Luigi and Linda’s joint account in high risk Puerto Rico bonds. Additionally, Bianchi and Cannon failed to obtain the customers’ prior authorization before purchasing the Puerto Rico bonds in their account. Bianchi and Cannon assured the customers that Puerto Rico bonds were safe investments.
As of January 2013, Bianchi and Cannon recommended the customers invest approximately 26% of their joint account in Puerto Rico bonds; the overwhelming majority of these Puerto Rico bonds were uninsured and inherently high risk investments and unsuitable.
Puerto Rico suffers from long-term financial and economic deficiencies that rendered its credit increasingly more speculative. The deterioration of Puerto Rico’s financial condition culminated in its debt being downgraded to junk status or speculative (below investment grade). For the past several years, Puerto Rico has been struggling with compounding debt and economic decline. As a result, the value of Puerto Rico’s municipal tax-free bonds has considerably fallen. Since September 2013, when the steep decline in Puerto Rico bond values began, investors holding these bonds have suffered massive losses. In May 2017, Puerto Rico filed for bankruptcy protection from creditors in what is being described as the largest municipal bankruptcy filing in history. This filing came about after Governor Ricardo Rossello failed to persuade Puerto Rico’s creditors to settle for a reduced payment amount, the government faced new lawsuits pending from their defaults, and the proposed 10-year fiscal plan only (see our previous post here) that was approved in March 2017 covered a quarter of the debt payments necessary for the island.
Despite the obvious risks associated with Puerto Rico bonds, Bianchi and Cannon recommended a speculative and unsuitable strategy of dangerously concentrating the customers’ Wells Fargo account in high risk Puerto Rico bonds. Bianchi and Cannon failed to adequately disclose the significant risks associated with the Puerto Rico bonds they recommended. Bianchi and Cannon’s reckless investment strategy lacked meaningful diversification and needlessly exposed the customers to credit risk of a single financially troubled territory.
When the couple noticed the value of their Puerto Rico bonds declining, they contacted Cannon to ask what could be done to preserve their irreplaceable principal. Cannon repeatedly assured the customers that he was monitoring the situation, and recommended that they continue to hold their increasingly speculative and unsuitable Puerto Rico bonds. Regrettably, the couple followed Cannon’s recommendations to their severe detriment. The vast majority of the Puerto Rico bonds Wells Fargo recommended and sold to the customers have defaulted.
Bianchi was registered with Wells Fargo Clearing Services, LLC in Flemington, New Jersey from 2006 until February 2018.
Cannon has been registered with Wells Fargo Clearing Services, LLC in Flemington, New Jersey since 2009. Cannon was the subject of one additional customer complaint in 2016 that was denied.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Wells Fargo may be liable for investment or other losses suffered by Bianchi’s customers.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.