Wells Fargo misrepresented to its customers the risks of buying $3.9 billion of auction-rate securities, a Washington state securities regulator...
Wells Fargo misrepresented to its customers the risks of buying $3.9 billion of auction-rate securities, a Washington state securities regulator claimed.
Wells Fargo “misrepresented and failed to disclose material information to their customers, and made unsuitable recommendations” to buy the securities, the Washington State Department of Financial Institutions said Wednesday in an administrative order.
Wells Fargo, the biggest bank on the West Coast, is disputing the allegations.
“The state’s claims and allegations do not accurately portray the facts,” Charles W. Daggs, Chief Executive of Wells Fargo Investments, said in a statement.
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“We did not actively market or promote auction rate securities and we did not provide special incentives for brokers to sell them,” Daggs said in the statement.
The regulator said it will seek restitution and impose fines if Wells Fargo fails to “cease and desist” from violating state securities laws. Wells Fargo can request a hearing on the allegations, the order said.
Auction-rate securities are bonds with interest rates that reset as frequently as every day, when investors have a chance to sell their bonds in auctions run by Wall Street banks. But in early 2008 the market froze up as a result of the mortgage meltdown, leaving many investors unable to get their money out.
Wells Fargo said it didn’t act as an underwriter or auction dealer and only participated in auctions through a third-party intermediary.
Citigroup, UBS, Merrill Lynch and other companies have agreed to repurchase more than $50 billion of debt to settle claims that they improperly touted the investments as safe and cash-like. JPMorgan Chase agreed to pay fines of $20 million as part of settlements in New York and Florida related to the securities and took third-quarter charges of $248 million to buy some back.
Wells Fargo’s “involvement in the ARS market was significantly different from the underwriters who have settled with various regulators and agreed to buy back certain customers’ securities,” the bank said.
David Guren, an 81-year-old Seattle resident who said he invested $100,000 from his Wells Fargo brokerage account in auction-rate securities, doesn’t buy the disclaimer. “I didn’t even know it (auction rate securities) existed — how could I have received it had they not promoted it and sold it to me?”
Guren said he told his broker the money should to be put in a liquid investment so he could buy a residence, and the broker put it into auction securities. Three-quarters of his money “has been frozen for 8-10 months … and I can’t touch it.”
Seattle Times staff
contributed to this report.