California, Institutional Investors Sue Over Auction-Rate Securities Sales
The fury over auction-rate securities continues to heat up in the state of California, which has filed a lawsuit against three Wells Fargo subsidiaries for allegedly telling California investors that $1.5 billion of the risky securities were “cash-like investments.”
The lawsuit, filed April 23 in San Francisco, focuses on Wells Fargo Investments LLC, Wells Fargo Brokerage Services LLC and Wells Fargo Institutional Services LLC. During a news conference, California Attorney General Jerry Brown said the Wells Fargo firms advertised the auction-rate securities to investors as short-term, liquid investments, similar to money-market accounts. When the market for auction-rate securities collapsed in February 2008, however, investors quickly lost their money.
According to Brown, about 2,400 Californians are unable to sell their ARS investments, leaving many strapped for cash that they need to pay their day-to-day living expenses.
Following the collapse of the auction-rate market, federal and state regulators launched investigations into whether Wall Street institutions deceived investors about the liquidity and risks of auction-rate securities. In August 2008, a number of firms agreed to settle those claims by agreeing to pay fines and buy back billions of dollars of the instruments from retail investors and small businesses.
In addition to California, several other lawsuits recently have been filed over auction-rate securities. On April 17, Braintree Laboratories, a pharmaceutical company based in Braintree, Massachusetts, filed a lawsuit against Citigroup, charging the bank with selling more than $33 million of auction-rate securities and misrepresenting them to Braintree as “money-market investments.”
Also on April 17, Ashland, Inc., which makes Valvoline motor oil and other chemicals, filed a lawsuit against Oppenheimer & Co. over the sale of $194 million of auction-rate securities. According to the complaint, Oppenheimer failed to disclose accurate and truthful information about the liquidity and risks associated with auction-rate securities.
Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.
