WASHINGTON, D.C. November 18, 2009 – The North American Securities Administrators Association (NASAA) today announced that a settlement in principle has been reached between Wells Fargo Investments LLC and state securities regulators to return approximately $1.3 billion to the firm’s clients who have had their funds frozen in the auction rate securities (ARS) market.

Since the collapse of the ARS market in 2008, state securities regulators have secured settlements calling for firms to repurchase from investors more than $61 billion in auction rate securities, the largest return of funds to investors in history.

The settlement with a brokerage unit of San Francisco-based Wells Fargo & Company is the result of an investigation led by the Securities Division of the Washington State Department of Financial Institutions into allegations that Wells Fargo misled clients by falsely assuring them that ARS securities were a safe, liquid alternative to cash, certificates of deposit or money market funds. The ARS markets froze in February 2008, triggering complaints from investors who could not withdraw money from their accounts. At the time of the market failures, customers of Wells Fargo Investments nationwide held an estimated $2.95 billion in ARS.

The settlement requires Wells Fargo Investments to extend offers to repurchase ARS from all customers nationwide by approximately February 18, 2010.

“Today’s settlement demonstrates the value of states working in concert to benefit investors nationwide,” said NASAA President and Texas Securities Commissioner Denise Voigt Crawford. “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.”

Crawford commended the work of the state securities regulators in California, Georgia, Missouri, Oregon, Texas, Utah and Washington who investigated the matter and led settlement negotiations.

Under the terms of the settlement, Wells Fargo agreed to buy back at par value by approximately April 18, 2010 all auction rate securities purchased through its brokerage unit by investors before February 13, 2008. The settlement agreement also calls for Wells Fargo to:

  • Fully reimburse certain investors who sold their auction rate securities at a discount after the market failed;
  • Consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by investors covered by the settlement as a result of their inability to access their funds; and
  • Pay to the states monetary penalties of $1.9 million.

In consideration of the settlement, the states will agree to terminate their investigation of Well Fargo’s marketing and sale of auction rate securities to investors.

The investigation into possible violations by the Wells Fargo unit is part of a larger, ongoing effort directed by state securities regulators to address problems in connection with the offer and sale of ARS securities. In 2008, state securities regulators began receiving hundreds of complaints from Main Street investors. As a result, in April 2008, NASAA announced the formation of a multi-state Task Force, comprised of securities regulators in 12 states, to investigate whether the nation’s prominent Wall Street firms had systematically misled investors when placing them in ARS securities.

NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico.

For more information:

Bob Webster, Director of Communications

Other Inquiries-
Rex Staples, NASAA General Counsel

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