Wells Fargo Investments LLC will return about $1.3 billion to investors who suffered losses in the auction-rate-securities market, according to the North American Securities Administrators Association Inc.
Well Fargo will also pay individual states a combined $1.9 million in penalties, according to the terms of the settlement the bank 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 a statement released last week.
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 about April 18.
The company will also reimburse some investors who sold their auction-rate securities at a discount after the market failed. In addition, Wells has consented to participate in a special public-arbitration procedure to resolve claims.
“We have been working with ARS issuers since the auction-rate market froze, and while there has been progress, redemptions by issuers have not occurred as fast as anyone would have hoped or predicted,” Charles Daggs, chief executive of Wells Fargo, said in a statement. “We are glad to have resolved this for our customers through an actual repurchase of their ARS.”
The buyback offer generally will be available to Wells Fargo's retail clients, individual investors, some charities and other customers who had less than $10 million in investible assets as of Jan. 31, 2008, the company said. Wells Fargo expects to purchase up to $1.4 billion of ARS with an estimated financial impact of about $150 million after tax in the fourth quarter.
Wells expects to recover the cost over time through redemptions of the securities, according to its statement.
The auction-rate-securities markets froze in February 2008, triggering complaints to state securities regulators from hundreds of investors who could not withdraw money from their accounts. At the time, 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 the 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.
Since the collapse of the auction-rate-securities market in 2008 state regulators have secured settlements for firms to buy more than $61 billion in auction-rate securities from investors, which according to NASAA is the largest return of funds to investors in history.
E-mail Sara Hansard at [email protected].
