NASD Sanctions Wells For Non-Cash Compensation Rule Violations

NASD Website - WASHINGTON, DC, October 13, 2003

NASD announced today that it has sanctioned Wells Investment Services, Inc., a sponsor of real estate
investment trusts (REITs), for rewarding broker/dealer representatives who sell their REITs with lavish entertainment and travel perquisites, in violation of NASD rules. NASD censured Wells Investment and its President, Leo Wells, and fined them $150,000. NASD also suspended Leo Wells from acting in a principal capacity for one year.

NASD prohibits REIT sponsors from rewarding broker/dealer representatives from other firms with entertainment, gifts or other non-cash compensation. These practices create point-of-sale incentives that may undermine a representative's ability to objectively recommend suitable investments to customers.

In 2001 and 2002, Wells Investment sponsored conferences in Scottsdale, Arizona, and Amelia Island, Florida, which were attended by broker/dealer representatives from other firms who sold its REIT products. Although Wells Investment represented to NASD that these conferences were "strictly educational," they actually constituted lavish affairs that did not meet the standards of NASD rules. For example, Wells Investment provided broker/dealer representatives with 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 also invited the representatives' guests to many of these events, and paid for the guests' food, transportation, lodging and golf fees. Wells Investment provided less than 13 hours of training and education during the three full days of each conference.

In settling this matter, Wells Investment and Wells neither admitted nor denied the allegations, but consented to the entry of findings and imposition of sanctions. Sphere: Related Content