A FINRA arbitration panel ordered Wells Fargo Advisors and an employee to pay around $8.7 million to a former OfficeMax CEO and his wife over the firm’s handling of Puerto Rican municipal bonds.
Sammy Kaye Duncan — who served as OfficeMax’s CEO from 2005 to 2010 — along with Sylvia Duncan and their revocable trust, claimed that Wells Fargo and an advisor, Marc Francis Rogers, breached fiduciary duties, recommended unsuitable securities and engaged in manipulative and deceptive practices, according to the FINRA
Rogers held onto the Puerto Rican municipal bonds even though analysts at the bank were sounding the alarm about a possible upcoming drop-off in value, says an attorney for the Duncans, Gerard Fox. When the bonds sunk under investment grade into junk territory, the Duncans lost $2.3 million, he says.
“Analysts inside Wells Fargo were being frank about the fact that if you had clients in these bonds, you should not be in high concentration,” Fox says. “Talk to your clients, make sure they understand this is moving toward becoming a very high-risk investment. The broker did the opposite.”
The three-arbiter panel ordered Wells Fargo and Rogers to pay almost $4.2 million in compensatory damages, $832,000 in interest, $2.7 million in attorneys’ fees, $500,000 in punitive damages, $100,000 in monetary sanctions and other costs, per the award.
Rogers alledgedly misled his clients about the safety of the positions and even removed pages from client communications to shroud the dangers, Fox says. “Economic analysts were warning very carefully that these bonds are going to drop precipitously and the case came down to whether Rogers should have continued to hold these bonds past the point that they dropped into junk status,” Fox says.
Rogers declined to comment.
The original claim also listed RBC Capital, where Rogers worked prior to heading to Wells Fargo in 2010, per
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FINRA charges restitution but forgoes punitive fines for the three firms after crediting them for cooperating in its investigation.
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Wells Fargo says the firm is looking into possible recourse. “We disagree with the award and we are researching our options,” a company spokesman says. An attorney for Wells Fargo and Rogers, Sara Soto, did not return a request for comment.
Fox says the bonds eventually became so risky that Wells Fargo stopped recognizing them as collateral for a loan Duncan had taken out with the bank. “The irony that fell hard on the arbitrators was that the bank was not going to accept these bonds because it was junk,” Fox says, “and yet Rogers was hiding the risk.”
Rogers began his career in 1982, per BrokerCheck. He moved to Morgan Stanley in 1998 before landing at RBC Capital in 2004, per BrokerCheck. Two disclosures from 1998 and 1999 alleged churning and unsuitability and were settled for $250,000 and $200,000 respectively, per BrokerCheck.
