Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, November 18, 2009

Wells Fargo Settles ARS Charges with State Securities Regulators

NASAA today announced another settlement (in principle) with a securities firm over its sales of auction rate securities (ARS).  Wells Fargo Investments LLC agreed to return approximately $1.3 billion to the firm's clients who have had their funds frozen in the ARS market.  The settlement requires Wells Fargo Investments to extend offers to repurchase ARS from all customers nationwide by approximately February 18, 2010.  Wells Fargo Investments is a brokerage unit of San Francisco-based Wells Fargo & Company.

The settlement is the result of an investigation led by the Securities Division of the Washington State Department of Financial Institutions into allegations that Wells Fargo misled clients by falsely assuring them that ARS securities were a safe, liquid alternative to cash, certificates of deposit or money market funds. The ARS markets froze in February 2008, triggering complaints from investors who could not withdraw money from their accounts. At the time of the market failures, customers of Wells Fargo Investments nationwide held an estimated $2.95 billion in ARS.

Under the terms of the settlement, Wells Fargo agreed to buy back at par value by approximately April 18, 2010 all auction rate securities purchased through its brokerage unit by investors before February 13, 2008. The settlement agreement also calls for Wells Fargo to:

  • Fully reimburse certain investors who sold their auction rate securities at a discount after the market failed;
  • Consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by investors covered by the settlement as a result of their inability to access their funds; and
  • Pay to the states monetary penalties of $1.9 million.

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This is a company that needs some serious oversight. I will never do business with them again.

Posted by: JTM | Nov 27, 2009 8:24:35 PM

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