As reported in the New York Times, California’s Attorney General filed a lawsuit today against three Wells Fargo companies, including Wells Fargo Investments.  The suit stems from Wells Fargo’s “false and deceptive advice” to its customers that Auction Rate Securities were safe and liquid as cash.  

As has been reported significantly, a number of firms have faced class actions, individual lawsuits, arbitration claims, and regulatory action as a result of marketing Auction Rate Securities as “cash equivalents.”  In fact, Auction Rate Securities are long-term investments that had interest rates that reset periodically at auctions.  Prior to February 14, 2008, the largest investment banks and broker-dealers supported the auction markets.  However, when these firms ran into liquidity problems, they became unable to continue their support.  As a result, there was not enough money in the auctions to keep them running.  This caused the auctions to fail and resulted in owners owning billions of long-term bonds and perpetual preferred securities that generally paid interest rates equivalent to rates paid on short-term investments.  

While the majority of the prospectuses for Auction Rate Securities disclosed potential risks related to auction failures, most customers never received a copy of the prospectus at the time of sale.  In fact, many investors were not provided a prospectus until after the auctions failed.  Unfortunately, by that time, it was too late as the risks had become self-evident.  

If you own Auction Rate Securities that have not been redeemed, you may want to contact an attorney to discuss your rights.  The Kueser Law Firm is a boutique legal practice that focuses its practice on protecting the rights of investors and recovering investment losses for companies and individuals.  You may contact us by completing the form to the right, or by visiting our website.