Wells Investment Services
of Norcross, Georgia has agreed to pay a $150,000 fine to the NASD for improperly rewarding broker-dealer reps for sales of its REITS. The NASD also censured Wells Investment and its president, Leo Wells
, and suspended Wells from acting in a principal capacity for one year.
Both Wells Investment and Wells neither admitted nor denied the allegations, but consented to the entry of findings and imposition of sanctions.
"This case makes clear that NASD will not tolerate any payment of non-cash compensation that runs afoul of those rules," said Mary Schapiro, vice chairman of NASD.
The NASD contended that that REIT sponsors rewarded broker-dealer representatives
with entertainment, gifts or other non-cash compensation. It claims that those practices create point-of-sale incentives that may undermine a representative's ability to objectively recommend suitable investments to customers.
What got the firm in hot water were conferences in Scottsdale, Arizona, and Amelia Island, Florida, which were attended by reps from other firms who sold its REIT products in 2001 and 2003. Those conferences were "lavish affairs that did not meet the standards of NASD rules" rather than educational events, says the NASD.
One conference included a Friday night "sock hop," a "beach bash," and dinner at a Civil War fort with costumed Civil War heroes, fireworks, fife and drum players, skydivers, and a cannon reenactment. Wells Investment paid for the guests' food, transportation, lodging and golf fees.
At the same time it provided less than 13 hours of training and education during the three full days of each conference.
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