Reuters: Regulatory News: Wells Fargo must buy back $2.2mln in auction rates

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Wells Fargo must buy back $2.2mln in auction rates May 10th 2012, 22:27 By Suzanne Barlyn Thu May 10, 2012 6:27pm EDT May 10 (Reuters) - A unit of Wells Fargo & Co. must buy back $2.2 million in auction rate securities from two investors and a trust, a securities arbitration panel has ruled. A Financial Industry Regulatory Authority arbitration panel in Los Angeles ordered Wells Fargo Institutional Securities LLC, to repurchase $2.2 million of investments in several types of auction rate securities from Richard and Donna Wagner and a trust for which Mr. Wagner serves as trustee. The Wagners filed their case in 2010, alleging that Wells Fargo misrepresented the investments and committed fraud, among other things, according to the ruling, dated Tuesday. They initially sought a total of nearly $3.3 million for full reimbursement of the face value of the securities, according to the ruling, which was posted to FINRA's website on Thursday. But the auction rate issuers redeemed some of the securities during the proceedings, according to James Ebert, an Irvine, California-based lawyer who represented the investors. The $2.3 million ruling represented the full amount of the investors' remaining securities, Ebert said. Auction rate securities were sold as highly liquid short-term instruments similar to money-market funds, but with slightly higher returns. When the $330 billion auction-rate market failed in 2008, as large investment banks that ran the auctions ran into liquidity crunches, thousands of investors were left with securities that could not be sold. The FINRA panel ruled that while Wells Fargo did not commit fraud, the investors "were not treated fairly." It specifically found that Wells Fargo did not act in the best interests of the Wagners by excluding their claims from a $1.4 billion settlement between the company and California's attorney general in 2009. The pact returned funds to more than 3500 Wells Fargo customers who purchased auction rate securities that became illiquid. Securities arbitration rulings rarely include a reason for the panel's decision, lawyers said. The investors "are very pleased with the results," said Ebert. Their investments included auction rate securities issued by PIMCO and Eaton Vance Corp. A Wells Fargo spokesman declined to immediately comment. Link this Share this Digg this Email Reprints

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