Wells To Pay $1.4 Billion To Securities Investors

Wells To Pay $1.4 Billion To Securities Investors - 11/18/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

SETTLEMENT NEWS:

Wells To Pay $1.4 Billion To Securities Investors
Chris Serres

Star Tribune. November 18, 2009
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EXCERPT: In yet another reminder that the financial crisis is far from over, Wells Fargo & Co. has agreed to buy back $1.4 billion in esoteric debt vehicles called "auction-rate securities" it sold to investors before the market for the securities collapsed last year and the auctions dried up. The buy-back settles allegations made by California's attorney general that Wells Fargo peddled these securities as safe, solid and as good as cash -- even though large accounting firms had warned of potential risks if the auctions failed. Early last year, thousands of investors -- from wealthy retirees to university endowments, charitable foundations, municipalities and religious groups-- were left stranded when the market for the securities dried up, and the auctions failed. Though a number of large banks and Wall Street brokerage firms have reached similar agreements, the Wells Fargo settlement stands out for its size, and by the fact that it involves a bank that is still receiving financial support from taxpayers. The U.S. Treasury invested $25 billion in Wells Fargo a year ago, and the San Francisco-based bank has yet to repay money, even though many of its rivals have. "To the extent that the government is a shareholder of Wells Fargo, we're all paying for this" settlement, said Andrew Winton, chair of the finance department at the University of Minnesota. "It reinforces the whole notion of caveat emptor -- that you have to be careful what you get into, because these banks seem to have undersold the risks." The securities resemble corporate debt, except the interest rates are set periodically, usually every week, in auctions overseen by brokerage firms that sold them.

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