by Bill Singer
Wells Fargo Broker Barred After $8.9 Million in FNMA and Freddie Mac Customer Settlements
October 4, 2011
For the purpose of settling proposed rule violations by the Financial Industry Regulatory Authority ("FINRA") but without admitting or denying the finding, Tom D. Hamsher submitted an Acceptance, Waiver and Consent ("AWC"), which the self-regulatory organization accepted. In the Matter of Tom D. Hamsher, Respondent (AWC/2009018421001, September 27, 2011)
Background
Hamsher first became registered as a General Securities Representative in July 1987. During the relevant time of June 1994 until his resignation in March 2009, Hamsher was a producing manager for A.G. Edwards & Sons, Inc. and its successor firms, Wachovia Securities, LLC and Wells Fargo Advisors, LLC. (collectively, the "Firm") at a small branch office in Chillicothe, OH. Hamsher had no prior regulatory history.
Not Quite Preferred
The AWC alleged that from at least January 2006 to August 2008, Hamsher made misrepresentations and omitted to state material facts in conversations and correspondence with dozens of customers who purchased on his recommendation the preferred securities of financial institutions, including the Federal National Mortgage Association a/k/a "Fannie Mae" ("FNMA") and the Federal Home Loan Mortgage corporation a/k/a "Freddie Mac" ("FMCC"). Following Hamsher's March 2009 resignation, his Firm subsequently settled about $8.9 million in customer claims.
Pointedly, the AWC alleged that Hamsher misrepresented that preferred securities issued by FNMA and FMCC were bonds, thus fostering the false impression among customers that these investments were less risky than stocks. Hamsher further misstated that a preferred security's call date was the date customers would get their initial investment back at par value. Similarly, Hamsher's misrepresented that the securities were backed by the federal government, which misled investors into believing that their principal was guaranteed against loss.
The AWC alleged that Hamsher failed to adequately explain the characteristics of and the risks associated with the preferred securities of financial institutions. For example, he failed to disclose that any decision on the part of FNMA to redeem its preferred stock on the call date was optional and not a certainty. Further, Hamsher failed to disclose that on or about:
- July 11, 2008, his Firm had removed FNMA and FMCC preferred stock from its recommended Fixed Income Priority List because of extreme price volatility;
- July 16, 2008, the Firm changed its ratings for financial companies' preferred securities to unsuitable for new investment for conservative income investors; and
- July 17,2008, the Firm recommended that investors who could not tolerate extreme price volatility consider reducing their exposure to the preferred stocks of FNMA and FMCC when market opportunities arose.
Reckoning
The AWC alleged that Hamsher had misrepresented and omitted to state material facts to numerous customers in connection with the purchase or sale of securities, in violation of NASD Conduct Rules 2120 and 2110, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. Accordingly, FINRA imposed upon Hamsher a permanent Bar from association with any member firm in all capacities.