Wells Fargo's Auction-Rate Securities Problems Mount
Wells Fargo and its newly acquired affiliate, Wachovia Securities, continue to face a mountain of regulatory problems associated with their marketing and sale of auction-rate securities.
The Texas Securities Commissioner has issued an Order fining Wachovia Securities $4 million for misleading investors about the safety of auction rate securities, according to a March 17, 2009 article by Mike Barris of the Wall Street Journal. According to the article, the Order further requires Wachovia Securities to complete the repurchase of auction rate securities from Texas clients by June 30, and made the following statements:
• That Wachovia Securities “fostered the misconception” that auction rate securities were cash-like instruments that could be accessed at almost any time.
• That “Wachovia and its registered securities agents were aware that the auction rate securities market was suffering from increased auction failures and illiquidity, and they should have disclosed those facts to investors….”
• That “[a]lthough Wachovia Securities sold auction rate securities as a conservative, safe, and liquid investment to its investors until February 2008, Wachovia had information that several auctions had failed in August 2007 and early 2008, before the mass failures in February 2008.”
Auction rate securities are long term debt instruments that have interest or dividend rates that are reset through a purported Dutch auction process. Auction rate securities were improperly sold as “cash equivalent” investments. Numerous banking giants have entered into settlements with state and federal regulators and agreed to buy back billions of dollars worth of auction rate securities for misleading investors about auction rate securities. In December, Texas issued a final order requiring Citigroup Inc. to pay Texas $3.6 million for misrepresenting auction rate securities to investors, Mr. Barris reported.
Wachovia Corp. was acquired by Wells Fargo late last year. They have a lot in common. In November 2008, the State of Washington, Department of Financial Institutions, Securities Division, filed a Statement of Charges and Notice of Intent to Enter Order to Cease and Desist, Offer Restitution, Impose Fines, Recover Costs, and Suspend Registration against Wells Fargo Investments. In a nutshell, the State of Washington charged that Wells Fargo Investments knew of problems with auction rate securities, including auction failures, but continued to sell them did not disclose the problems and failures to investors.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and corporate investors in auction-rate securities cases. For further information, please contact us.
