Wells Fargo Forced to Give Back $1.4 Billion; Fined $1.9 Million
By Paul Beebe and Tom Harvey
Salt Lake Tribune
Thousands of companies, individuals and charities were told the securities were as safe as cash. But the $330 billion market collapsed in February 2008, and investors’ accounts were frozen.
Lanny Smith, 60, a retired business owner living in Alpine, invested $4 million with Wells Fargo in the summer of 2007.
“I had money from the sale of a business that I wanted to park. I had a couple of criteria. One was liquidity. Second, I needed it to be absolutely secure because I’m not willing to lose money at this point in my life,” Smith said Thursday.
Smith said he instructed his Wells Fargo broker to invest his money in a tax-free municipal bond fund. Instead, the broker put his money into auction-rate securities offered by several investment firms. Evidence of the investments showed up on his statements, but Smith assumed ARS was the name of a bond fund.
Watts Cookin’ promises to do some research before making comments on this matter, but there are lots of questions to ask about this situation. When we have the answers we will let you know.
“I asked them to invest me in a fund that gave me the liquidity and security that I was looking for. I was not aware that I was involved in the auction-rate securities until the market for [them] froze,” Smith said.
The market seized up in February 2008. Six weeks later, Wells Fargo sent Smith a letter saying the rating of his bonds had been lowered from AAA to BBB.
“I didn’t want anything lower than AAA, so I immediately called my broker and asked him to sell. He told me, ‘I can’t do that. There is no market.’”
Earlier this year, Smith got a telephone call from a securities auditor with the Utah Division of Securities. The auditor said Smith’s name was on a list of names Wells Fargo had supplied.
Thursday morning, the auditor called again. He said Wells Fargo had 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.
“If I was to say one thing, I don’t typically feel I’m going to get protected by the federal government or the state government. But thanks very much to the state of Utah for making this happen,” Smith said.
State regulators played a major role in the investigation, a state official said Thursday.
Francine Giani, executive director of the Department of Commerce, said Utah Division of Securities investigators spent six months looking into the loan practices. On Wednesday, Wells Fargo agreed to repay customers about $1.4 billion to settle a lawsuit and regulatory investigations alleging the company improperly marketed risky investments as safe.
“The lion’s share of what was used to move this forward on the national stage was based on some of the work done here,” Giani said.
Giani said the state also will bill Wells Fargo $75,000 for the cost of its investigation.