Wells Fargo & Co., which recently bought Wachovia Corp. and its 75 Connecticut branches, disputed claims made by the Washington State Department of Financial Institutions that Wells Fargo misled customers in the sale of more than $175 million of auction-rate securities.
“The state’s claims and allegations do not accurately portray the facts,” said Charles W. Daggs, chief executive of Wells Fargo Investments LLC, in a statement. “We did not actively market or promote auction-rate securities, and we did not provide special incentives to brokers to sell them.”
The Securities Division of the Washington State Department of Financial Institutions issued charges against Wells Fargo on Nov. 20, claiming that the bank’s brokerage firms “made unsuitable recommendations to” and “misled” customers in the sale of the securities. As a result, the division is seeking the return of funds to Washington customers who bought the securities.
The division said it was taking action after receiving several complaints from clients of Wells Fargo brokerage firms.
San Francisco-based Wells Fargo contended that its involvement in the auction-rate securities market was significantly different from that of other underwriters who have settled with various regulators in recent months and have agreed to buy back the securities.
The auction-rate securities market involved investors buying and selling instruments that resembled corporate debt, with interest rates that were reset at regular auctions, some as frequently as once a week.
Tens of thousands of investors nationwide — including institutional and individual investors, charities and municipalities — were left holding damaged securities that couldn’t be readily sold for cash after the $330 billion market crashed in February, regulators say.
Regulators have reached settlements totaling more than $50 billion in buybacks of the securities with companies including Citigroup Inc.; UBS AG; Morgan Stanley; JPMorgan Chase & Co.; Wachovia Corp.; Merrill Lynch & Co.; Goldman Sachs Group Inc.; Deutsche Bank; Credit Suisse Group; and Fidelity.
Wells Fargo said its retail brokerage Wells Fargo Investments did not actively market or promote auction-rate securities to its brokers or clients, or provide special incentives to financial consultants to sell the securities. The company also said it did not deal directly with auction-rate securities underwriters, but rather participated in auctions through a third-party intermediary. (AP)
