Southern California -- this just in

« Previous Post | L.A. NOW Home | Next Post »

State reaches $1.4-billion settlement with Wells Fargo over risky securities [Updated]

November 18, 2009 |  9:35 am

State Atty. Gen. Jerry Brown announced today a $1.4-billion settlement with three Wells Fargo affiliates that misled investors into believing risky auction-rate securities were safe. 

The money will be paid back to investors, charities and small businesses that bought the securities – including about $700 million to California investors.

After nationwide auction markets froze in February 2008, investors were unable to sell their securities. Brown sued the Wells Fargo affiliates -- Wells Fargo Investments, Wells Fargo Brokerage Services and Wells Fargo Institutional Securities -- earlier, alleging that they violated California's securities law by routinely misrepresenting the securities as safe, liquid and cash-like investments.

Brown contends in the lawsuit that the company “ignored clear industry and internal warnings about risk and previous auction failure,” according to a statement released by his office.

"Wells Fargo convinced thousands of investors to purchase auction-rate securities with promises of robust returns and liquidity, but when the market collapsed, investors were left out in the cold," Brown said.

Under the settlement, Wells Fargo will buy back $1.4 billion of securities from the investors.

-- Raja Abdulrahim

[Corrected at 11:43 a.m.: An earlier version of this post incorrectly stated that the amount of the settlement was $1.4 million.]

More breaking news in L.A. Now:

University of California student fees could increase by more than $2,500

Michael Jackson was 'probably' in denial about drug abuse, Janet Jackson says

'Geezer bandit' robs 5th bank in San Diego County