Regions

Arbitration panel orders Wells Fargo & Co to repurchase auction rate debt

December 27
7:12 PM 2013

An arbitration panel ordered Wells Fargo & Co to repurchase auction rate securities worth $94 million from investors, Bloomberg reported. Wells Fargo is the fourth largest bank in terms of assets. A diversified financial services firm operating through brick-and-mortar stores, online and other distribution channels in North America and internationally, Wells Fargo provides banking, investments, insurance, leasing, mortgage, consumer finance and credit cards.

The bank's brokerage unit based in San Francisco was ordered to pay par value to investors which include James S. Cohen and a family trust for the securities, the report said. The order for Wells Fargo Advisors was written in a December 24 decision by the Financial Industry Regulatory Authority arbitration panel. The panel did not grant the investors' $20 million request in damages.

The international market for auction rate securities valued at $330 billion collapsed when potential buyers disappeared in the credit crunch of 2008. As a result, regulatory probes and lawsuits followed on claims that brokers and underwriters made false claims about the promoting auction rate securities as safe investments that are similar to cash.

Wells Fargo Spokesman Tony Mattera said that the ruling disappointed the bank and that it is currently evaluating it, the report said.

Investment News reported that Wells Fargo and its other rivals like UBS Wealth Management Americas, Merrill Lynch and Morgan Stanley have repurchased auction rate securities amounting to billions of dollars and have agreed to penalties worth millions since 2008 in order to settle charges that they did not supervise their advisers properly and failed to give information to investors concerning the debt securities.

However, a lot of investors found it difficult to sell the long-term debts when the financial crisis seized up the markets. The Cohens alleged that the adviser said they would benefit from high rates of return and would be able to get back their investment in a matter of months, Investment News reported.

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