[F]rom in or about 2010, through 2017, Wyckle, and Cortés-López, along with other individuals known and unknown to the Grand Jury, raised over $12,000,000 in so-called Promissory Notes on behalf of The Republic Group, Inc. 

Defendants Wyckle and Cortés-López solicited investors in person, via telephone, and via the internet, and caused materially false and misleading representations to be made to investors. Wyckle and Cortés-López falsely stated to investors that their investment would facilitate high-interest rate, short-term loans for various companies, including hotels, resorts, and other hospitality industries in the Dominican Republic, and elsewhere. The defendants failed to disclose to investors that investments would be used for Wyckle's personal expenses, goods and services at retail stores, restaurants, travel, rent, entertainment, and to make lulling payments to existing investors. Defendant Cortés-López was paid a commission, which he failed to disclose, from each investor that he brought to The Republic Group, Inc.

[T]he Republic Group, Inc., through its president Gary S. Wykle and executive vice-president and securities salesperson Alejandro Cortes, raised approximately $9.4 million from at least 150 investors in Puerto Rico and Florida through sales of promissory notes. Wykle and Cortes allegedly told prospective investors that the purchase funds for the notes, which generally offered investors interest rates ranging from 2.5% to 3% per month, would be used to make short-term, high interest loans to travel industry businesses in the Dominican Republic. As alleged, however, Republic Group never used investor funds to make these loans. Instead, the complaint alleges that Wykle misappropriated more than $1.2 million in investor funds for his own use, and also used new investor money to pay monthly interest to earlier investors. Wykle allegedly also misused offering proceeds by paying undisclosed sales commissions totaling $1.28 million to Cortes. The complaint further alleges that Cortes illegally acted as an unregistered broker while offering and selling Republic's securities, and that Wykle and Cortes sold the notes without registering their offering of securities.

On August 28, 2009, Wachovia Securities, LLC-which Wells Fargo Advisors, LLC had acquired in December 2008-executed an AWC through which it consented to findings that it violated NASD Rules 2110 and 3010 due to "supervisory failures regarding variable annuity sales" and having "had an inadequate system in place that would detect undisclosed switches." The AWC required the firm to pay a fine of $350,000.

several of Wells Fargo's registered representatives recommended that customers surrender more than 50,000 variable annuities with a principal value of more than $5 billion. The WSPs in effect during that period required that "qualified supervisors" review the suitability of any product "switch" by considering the comparative costs associated with the new and existing investments, and the comparative features and benefits of both investments. The Firm defined a "switch" as "the sale of an investment company product or insurance product that is followed by a purchase of an investment company product or insurance product." The WSPs for both Respondent Firms also required that they "automatically send switch letters to clients based on alerts generated by [their] supervisory system[s], unless withheld by the qualified supervisor." 

In spite of the WSPs' directive that supervisors review the suitability of product switches, Wells Fargo failed to ensure that such reviews happened when its representatives recommended that customers switch from a variable annuity to an investment company product. Notwithstanding the reference in the WSPs to switch "alerts generated by the firm's supervisory system," there was no switch alert during the Relevant Period to identify switches from variable annuities to investment company products and therefore the Firm did not send switch letters. Indeed, the Firm did not obtain from variable annuity issuers data sufficient to review the suitability of variable annuity surrenders and subsequent switches, including surrender fees. 

During the Relevant Period, Wells Fargo's registered representatives recommended at least 101 potentially unsuitable switches involving the sale of a variable annuity to purchase investment company products. For example, a former representative of the firm, Representative A, recommended that a customer liquidate a variable annuity with a surrender value of $126,681-which caused the customer to pay a surrender fee of $5,070-and then use the proceeds to purchase class A mutual funds with upfront sales charges totaling $5,531. In addition to causing the customer to incur $10,601 in surrender fees and upfront sales charges, the recommended switch from the variable annuity to mutual funds resulted in the customer earning less annual income than she would have earned had she not sold the variable annuity. As another example, Representative A also recommended that another customer liquidate a variable annuity with a surrender value of $180,500-which caused the customer to pay a surrender fee of $6,458-and use the proceeds to purchase class A mutual funds and a Unit Investment Trust with upfront sales charges totaling $7,579. In addition to causing the customer to incur $14,037 in surrender fees and upfront sales charges, the recommended switch resulted in the customer earning less annual income than he would have earned had he not sold the variable annuity. 

Because Wells Fargo did not have an alert to flag switches from variable annuities to investment company products prior to August 2016, no qualified supervisor reviewed the switches to determine if they were suitable and based on customers' financial needs and investment objectives. Collectively, the potentially unsuitable switches caused customers to pay $1,445,167.50 in unnecessary surrender fees (from surrendering the variable annuity) and upfront sales charges (associated with the purchase of the investment company product).

Following Wells Fargo's discovery of the deficiencies in its supervision of switches involving variable annuities, the Firm in August 2016 took several steps to improve its supervision of such transactions, including developing a switch alert to identify when the proceeds from a variable annuity liquidation are used to purchase an investment company product.