Wells Fargo units agree to buy back $1.4B in auction-rate securities to settle Calif. case

Wells Fargo agrees to buy back $1.4B in securities

SAN FRANCISCO — Wells Fargo & Co. on Wednesday agreed to repay customers about $1.4 billion to settle a lawsuit and regulatory investigations alleging the company improperly marketed risky investments as safe.

California Attorney General Jerry Brown sued the San Francisco-based bank last year and the North American Securities Administrators Association launched an inquiry of the bank’s subsidiaries over sales of so-called auction-rate securities. The investments resemble corporate debt, except that the rate of interest they pay is frequently reset at auctions.

A number of companies, charities and individual investors were told the securities were as safe as cash. But the $330 billion market collapsed in February 2008, and investors’ accounts were frozen.

Wells Fargo said Wednesday it agreed to buy back the securities from customers nationwide. The company also agreed to pay a $1.9 million fine while not admitting any wrongdoing.

“Wells Fargo convinced thousands of investors to purchase auction-rate securities with promises of robust returns and liquidity, but when the market collapsed, investors were left out in the cold,” Brown said in a written statement. “Based on misleading advice, investors bought these risky securities. Now, retail investors and small businesses are finally getting their money back.”

Wells Fargo is one of more than a dozen financial firms that have agreed with regulators to buy back the risky investments, which lost most of their value when the market for them evaporated early in 2008 as the credit crisis worsened.

Financial companies have agreed to repurchase more than $61 billion in the securities.

Wells Fargo said that before any firm agreed to buy back such securities, it started lending money at favorable rates to customers who purchased the securities at until the issuers could refinance the debt.

“While there has been progress, redemptions by issuers have not occurred as fast as anyone would have hoped or predicted,” Charles W. Daggs, CEO of Wells Fargo Investments LLC, said in a statement Wednesday. “We are glad to have resolved this for our customers through an actual repurchase of their ARS.”

Wells Fargo said eligible investors will receive details about the buyback offer by mail within 90 days.