In a recent enforcement action, the Financial Industry Regulatory Authority (“FINRA”) fined Wells Fargo Advisors, LLC (“Wells Fargo”) $1 million for failing to timely deliver prospectuses to approximately 934,000 customers who had purchased mutual funds in 2009, notwithstanding the fact that Wells Fargo had contracted with a third-party service provider to meet these obligations. FINRA found that Wells Fargo was aware of the late deliveries, which in some cases were up to 153 days late, having received quarterly reports and daily notifications regarding the delays from the third-party service provider and that Wells Fargo failed to take corrective action once it learned its delivery obligations were not being met.

This enforcement action underscores the risk of relying solely on contractual provisions with a service provider to satisfy securities law obligations without adequate policies and procedures to monitor compliance with those obligations, particularly when coupled with a failure to take corrective action to ensure compliance when necessary. It also underscores the importance of ensuring that entities with prospectus delivery obligations have the operational capacity to deliver prospectuses within three business days of any sale, as required by the federal securities laws.