Wells Fargo (WFC) will pay more than $6.5 million to settle claims with the Securities and Exchange Commission that its brokerage firm and a former executive did not properly disclose risks related to investments tied to mortgage-backed securities.

The agency found that Wells Fargo improperly sold asset-backed commercial paper structured with high-risk mortgage-backed securities and collateralized debt obligations to municipalities, nonprofits and others but did not obtain enough information about these investments, the SEC said Tuesday. Instead, Wells Fargo relied mostly on their credit ratings, the SEC said.

The company's employees "failed to understand the true nature, risks, and volatility behind these products before recommending them to investors with generally conservative investment objectives" the SEC said in a news release.

A phone call to Wells Fargo was not immediately returned.

The sales occurred from January 2007 to August 2007, according to the SEC order against Wells Fargo Brokerage Services, which is now known as Wells Fargo Securities.

The company failed to have a reasonable basis for its recommendations and failed to disclose to their customers the risks associated with the investments. Many of the customers suffered substantial losses in 2007 from the investments, the SEC said.

Shawn McMurtry, a former vice president at Wells Fargo who was involved in the sale of the investments, agreed to be suspended from the securities industry for six months and pay a $25,000 penalty. Wells Fargo agreed to pay a $6.5 million penalty, $65,000 in disgorgement and roughly $16,500 in prejudgment interest.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.