Naples, Fla. — Wells Fargo sold $4 million in risky auction rate securities to an elderly Naples man — representing almost half his portfolio — after the auction rate securities market had already frozen in early 2008 and securities regulators had taken steps to halt the deception and misleading marketing in the auction rate arena, according to a claim filed by the Vernon Healy investor advocacy law firm.
Thousands of investors still hold an estimated $100 billion in frozen auction rate securities and many could be forced to hold them to maturity or sell at a steep discount on the secondary market in the fallout from the financial crisis, according to the claim.
The investor, an elderly retired airline pilot and golf course investor, is now deceased. His daughters, both of whom are in their 60s, are seeking compensatory and punitive damages against Wells Fargo, whom they claim fraudulently billed the auction rate securities as safe “cash equivalents.” The daughters have been unable to liquidate $1 million of the auction rate securities because selling on the secondary market would force a steep loss of principal, the claim states.
Most of the auction rate securities purchases occurred after the auction rate securities market effectively froze in February 2008, and long after Wells Fargo knew that there were liquidity concerns, the claim states. State securities regulators, including the Florida Office of Financial Regulation, announced the formation of a multi-state task force to investigate fraudulent misrepresentations of auction rate securities in sales to investors in April 2008 — a month before Wells Fargo sold the $4 million in auction rate securities to the elderly Naples investor — according to the claim.
“The liquidity problems … culminated in early 2008, when hundreds of ARS auctions failed and the ARS market virtually collapsed; over $300 billion became illiquid in just a few months,” the claim states. “To date, more than $100 billion continue to be frozen, and thousands of retail investors cannot dispose of their ARS unless they wait until they mature or, in the alternative, sell them on the secondary market at a deep discount.”
Wells Fargo, then Wachovia, entered into a consent agreement with the Florida Office of Financial Regulation on April 17, 2009, in which the regulators found that Wells Fargo “fostered the misconception that ARS were cash-like instruments by providing account portfolio summaries to certain of its customers that listed ARS as cash equivalents,” the claim states.
Florida’s Office of Financial Regulation found Wells Fargo in violation of Florida Statutes Chapter 517 and fined Wells Fargo more than $5.6 million for dishonest and unethical practices as well as failure to supervise its employees, the claim notes.
Vernon Healy securities attorneys represent investors in all manner of securities fraud and financial negligence.
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