Wells Fargo’s Auction Rate Securities Woes Continue


Wells Fargo Securities LLC is the subject of an investor class action lawsuit alleging that it violated intended third-party beneficiaries of an auction rate securities settlement with the SEC by refusing to buy back auction rate securities from trusts that purchased and held those securities as trust property, according to a Law360 article by Richard Vanderford entitled “Wells Fargo Sued Over $7B Wachovia ARS Settlement.”

The suit is similar to many filed by investors who allege they were improperly cut out of auction rate securities settlements with regulators.

Auction rate securities are long-term bonds that were sold as short- term cash-equivalent parking places for safe money. The auctions that had provided liquidity collapsed in February 2008 when major sellers that had previously propped up the market became concerned about gathering credit storm and withdrew their support, leaving holders with auction rate securities they could not sell.

The lead plaintiffs in the suit against Wells Fargo allege that Wachovia (now Wells Fargo) fraudulently sold auction rate securities as liquid, settled an SEC suit that made similar allegations by agreeing to buy back $7 billion of auction rate securities, but has refused to pay investors who held auction rate securities in trusts administered by Wachovia, even where Wachovia bought the auction rate securities as trustee.

Incredibly, Wells Fargo allegedly continues to treat the securities as liquid securities on client statements and charges the trusts management fees based on the values that were given to the auction rate securities before the February 2008 collapse.

Thus Wells Fargo/Wachovia breached its fiduciary duty, as well as the settlement agreement with the SEC, according to the complaint.

The case is Wilson et al. v. Wells Fargo Advisors LLC, et al., case number 6451-2011, in the Delaware Court of Chancery.

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. Page Perry’s attorneys have extensive experience in representing investors in auction rate securities matters. For further information, please contact us.