The North American Securities Administrators Association (NASAA) today announced that a settlement in principle has been reached between Wells Fargo Investments LLC and state securities regulators to return approximately $1.3 billion to the firm's clients who have had their funds frozen in the auction rate securities (ARS) market. That makes it the last of the large banks to put its auction rate security mess behind it. According to details of the settlement, Wells Fargo will:
- Fully reimburse certain investors who sold their auction rate securities at a discount after the market failed;
- Consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by investors covered by the settlement as a result of their inability to access their funds; and
- Pay to the states monetary penalties of $1.9 million.
The investigation into possible violations by the Wells Fargo unit is part of a larger, ongoing effort directed by state securities regulators to address problems in connection with the offer and sale of ARS securities. In 2008, state securities regulators began receiving hundreds of complaints from Main Street investors. As a result, in April 2008, NASAA announced the formation of a multi-state Task Force, comprised of securities regulators in 12 states, to investigate whether the nation's prominent Wall Street firms had systematically misled investors when placing them in ARS securities.
Auction rate securities were once a $330 billion market before it crashed in early 2008.
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