Wells Fargo to return $1.3B to auction-rate investors

Wells Fargo Investments LLC has agreed to return approximately $1.3 billion to investors who suffered losses in the auction-rate securities market, according to a statement released by the North American Securities Administrators Association this morning.

Well Fargo will also pay individual states a combined $1.9 million in penalties, according to the terms of the settlement the San Francisco-based banking company reached with NASAA.

The company allegedly misled clients by assuring them that auction-rate securities were a safe, liquid alternative to cash, certificates of deposit or money market funds, NASAA said in its statement.

Under the terms of the settlement, Wells Fargo agreed to buy back, at par value, all of the auction rate securities investors purchased through its brokerage before Feb. 13, 2008.

Wells has agreed to repurchase these securities by approximately April 18, 2010.

The company is also to reimburse some investors who sold their auction rate securities at a discount after the market failed, and consent to a special public arbitration procedure to resolve claims.

The auction rate securities markets froze in Feb. 2008, triggering complaints to state securities regulators from hundreds of investors who could not withdraw money from their accounts. At the time of the market failures, customers of Wells Fargo Investments held an estimated $2.95 billion in the products, NASAA said.
“Today’s settlement demonstrates the value of states working in concert to benefit investors nationwide,” NASAA President and Texas Securities Commissioner Denise Voigt Crawford said in a statement. “State securities regulators continue to lead the effort to ensure that investors receive redemptions for their frozen auction rate securities, which were marketed as safe and liquid investments, and we will continue to seek much needed relief for investors who have suffered from the collapse of the ARS markets,” she said.

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