Wells Fargo Settles Lawsuit Over Auction-Rate Securities – DealBook Blog – NYTimes.com
Wells Fargo said on Wednesday that it had agreed to buy back $1.4 billion in auction-rate securities it sold to investors before the market for those securities dried up last year.The decision settles a lawsuit brought against the firm by California’s attorney general for violating the state’s securities laws. Wells Fargo also agreed to pay the state’s expenses related to the lawsuit.The brokerage arm of the bank marketed the securities, which resemble corporate debt and whose interest rates were regularly reset by auctions, as an alternative to cash for years, even after analysts warned that the market could freeze up. In February 2008, banks stopped participating in the auctions and effectively locked up investors’ cash.The suit, brought by the California attorney general, Jerry Brown, contended that Wells Fargo routinely misrepresented, marketed and sold auction-rate securities as safe, liquid and cashlike investments, omitting material facts.“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,” Mr. Brown said in a statement. “Based on misleading advice, investors bought these risky securities. Now, retail investors and small businesses are finally getting their money back.”Under the terms of the settlement, Wells Fargo agreed to buy back at par value by April 2010 all auction rate securities purchased through its brokerage unit by investors before the market froze up.About half of the auction-rate securities sold by Wells, which is headquartered in San Francisco, were bought by California residents.
This is apart from the hidden bonus in the healthcare bill over the redefinition of San diego and other California metros as rural etc costing $300 million to Obama’s administration. A good day for Californians!