SEC Authorizes Transfer of Remaining Distribution Funds and Terminates Wells Fargo Order

Key Takeaways

• The Securities and Exchange Commission (SEC) has approved the final accounting and termination of a distribution fund related to a 2019 enforcement action against Wells Fargo.
• This order authorizes the transfer of all remaining, unreturned funds from the fund to the U.S.
• Treasury.

Deep Dive

This regulatory update marks the formal conclusion of an administrative proceeding initiated in March 2019. The original enforcement action was part of the SEC's Share Class Selection Disclosure Initiative, which targeted investment advisers who failed to disclose conflicts of interest regarding 12b-1 fees and the selection of higher-cost share classes. For compliance teams, this signifies the end of the remedial phase for this specific matter.

The order specifically addresses the administration of a Distribution Fund originally established to pay USD $17.36 Million in disgorgement and prejudgment interest. The Respondents successfully disbursed 96.4% of the total payments, but a residual amount of USD $778,535.99 remained due to undeliverable checks, deceased investors without beneficiaries, and de minimis amounts. The SEC has now approved the final accounting, effectively closing the fund.

There are no new ongoing compliance requirements or deadlines introduced by this specific order; rather, it serves as a terminal regulatory event. The primary requirement was the submission of a final accounting to the Commission staff, which has been completed and approved. Any future funds returned to the fund must now be transferred directly to the U.S. Treasury.

For compliance professionals, this serves as a case study in the importance of robust record-keeping and diligent administration during the remediation process. The successful management of a large-scale distribution fund requires significant operational oversight to ensure regulatory compliance with the terms of an SEC order. The risk implication here is primarily operational; failure to properly administer such funds can lead to extended regulatory scrutiny and increased administrative costs for the organization.

Source: Securities and Exchange Commission