Thousand of investors were sold auction rate securities (ARS) with the promise the investments were like cash and liquid in a day or two notice. When the auctions failed last year, investors learned these creations of Wall Street were anything but leading to consequential damages as a result of investors not having access to needed funds.
Many state have already entered into settlements with the issuing firms, requiring the securities to be redeemed within a specified period. In the latest such action, the California Attorney General announced a settlement with Wells Fargo Bank. The full text of the November 18, 2009 press release appears below:
San Francisco- Attorney General Edmund G. Brown Jr. today announced a landmark $1.4 billion settlement with three Wells Fargo affiliates to pay back investors, charities and small businesses that purchased auction-rate securities based on “misleading advice.”
“Wells Fargo convinced thousands of investors to purchase auction-rate securities with promises of robust returns and liquidity, but when the market collapsed, investors were left out in the cold,” Brown said. “Based on misleading advice, investors bought these risky securities. Now, retail investors and small businesses are finally getting their money back.”
Under today’s settlement, Wells Fargo will buy back $1.4 billion in non-liquid auction-rate securities from thousands of retail customers, charities, and small businesses nationwide, including about $700 million to California investors. Wells Fargo will also pay legal costs and future monitoring expenses incurred by Brown’s office.
In February 2008, nationwide auction markets froze, and investors have been unable to sell their securities.
Earlier this year, Brown filed the suit against three Wells Fargo affiliates-Wells Fargo Investments, LLC; Wells Fargo Brokerage Services, LLC; and Wells Fargo Institutional Securities, LLC-for violating California’s Securities Law. Brown’s suit contended that Wells Fargo routinely misrepresented, marketed and sold auction-rate securities as safe, liquid and cash-like investments, omitting material facts. The company was also charged with failing to supervise and train its sales agents and selling unsuitable investments.
The lawsuit contended that Wells Fargo ignored clear industry and internal warnings about risk and previous auction failure. In March 2005, the Securities and Exchange Commission (SEC), the “Big 4″ accounting firms, and the Financial Accounting Standards Board all determined that auction-rate securities should not be considered “cash equivalents.”
Despite these warnings, Wells Fargo continued to aggressively sell and falsely market auction-rate securities as safe, liquid, cash-like investments until the nationwide auction markets froze in early 2008.
In marketing and selling these investments, Wells Fargo failed to inform investors about how auction-rate securities or the auction process worked, as well as the risks and consequences of auction failure.
If you have purchased a auction rate security and have suffered consequential damages or still have money frozen, please contact us for a free case evaluation. Thank you.