Ex-Wells employee already barred as a broker gets SEC boot from advisory industry

The SEC has taken the somewhat unusual step of banning a former Wells Fargo employee broker from acting as an advisor after he had previously been barred from the brokerage industry.

The Securities and Exchange Commission announced Monday that it had accepted Scott Wayne Reed's offer of banishment from the advisory industry for alleged sales of unregistered securities while he was at Wells Fargo from 2016 to 2020. As part of the same deal, the Wall Street regulator permanently prohibited him from any dealings in "penny stocks," or shares in small companies typically going for less than $5 each. 

The decision came after Reed, who is no longer registered with the SEC, accepted a permanent ban from the brokerage industry from the Financial Industry Regulatory Authority in February 2021. Attempts to reach Reed's legal counsel, Carolyn Saunders of Weiss Brown's Scottsdale office, were unsuccessful.

It doesn't always follow
It might seem that an SEC-imposed ban from the advisory industry would come automatically with a bar by FINRA, the broker-dealer industry's self-regulator. But that's not always the case.

Antoine Souma, a Los Angeles broker who had once operated a highly profitable brokerage before accepting a permanent bar in February, now runs an advisory firm, Galliott Capital Advisors, in Beverly Hills, California. Souma came under FINRA scrutiny last year for his alleged participation in a private securities transaction, among other things.

Rather than fight regulators, Souma accepted a bar from the brokerage industry. Attempts to reach him on Tuesday were unsuccessful.

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Joe Wojciechowski, an investment fraud lawyer at Chicago-based Stoltman Law, said the infrequency of FINRA bans that lead to SEC bans shows just how divided the regulatory enforcement system is. He said what might seem like a slam dunk — having people already kicked out of the brokerage industry also banned as advisors — can actually take a good amount of time and money.

"It's unfortunate the SEC has to spend its resources barring someone a second time," Wojciechowski said.

Wojciechowski said that letting financial professionals who've been barred as brokers continue to act as advisors is tantamount to losing the regulatory screws. In general, he said, FINRA subjects brokerage firms to greater oversight than the SEC can give to RIAs.

"There is too much regulation on all sides and not enough in the middle," Wojciechowski said.

An SEC spokesperson declined to comment.

A tangled web
The SEC's ban on Reed is just the latest of his regulatory struggles. Reed resigned his position at Wells Fargo Clearing Services's offices in Scottsdale, Arizona, in April 2020 after coming under accusations that he had gone outside the firm to encourage at least two clients to buy securities issued by a software developer.

The developer, Pasadena, California-based Pebblekick, is itself under scrutiny from the Securities and Exchange Commission over allegations that it had defrauded investors. The company, set up ostensibly to provide streaming entertainment services to prisons and other institutions, couldn't be reached for comment.

In March 2022, the Arizona Corporate Commission — the state's securities regulator — revoked Reed's securities salesman registration and advisor license at the state level. He was also told to pay roughly $1.8 million in restitution and a $50,000 administrative penalty.

And in September this year, a FINRA arbitration panel found Reed owed Wells Fargo nearly $1.5 million for recruitment loans he had received when joining the firm. FINRA placed another suspension on Reed on Nov. 29 after finding he had "failed to comply with an arbitration award or settlement agreement or to satisfactorily respond to a FINRA request to provide information concerning the status of compliance."

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A Wells Fargo spokesperson declined to comment.

Kirk Smith, an investor advocate and senior partner at Houston-based Shepherd, Smith, Edwards and Kantas, said Reed's alleged misdeeds may have presented an easier case for the SEC than other securities-related matters. "Selling away" is a fairly cut-and-dry technical violation and doesn't involve some of the ambiguity that can come into play when regulators try to decide if an advisor's individual recommendations to a given client were in fact suitable.

"In selling away from the firm, he didn't have those recommendations approved by his firm," Smith said. "Those are clear-cut objective violations the SEC can sink their teeth into."