Thursday, December 4, 2008

Washington State Files Against Wells Fargo

Wells Fargo & Co intends to fight plans by Washington state's banking regulator to impose a fine and seek restitution for customers it says were misled into buying auction-rate debt.

The Washington Department of Financial Institutions on Nov. 20 issued an order in which it concluded that San Francisco-based Wells Fargo misrepresented the debt as safe and the equivalent of money market funds, and failed to properly supervise or educate the salespeople who sold it.

Washington said it intends to order the bank to offer to buy back the debt at face value, and to pay a fine. Wells Fargo has the right to request a hearing to mount a defense before a penalty is imposed.

Auction-rate debt has rates that reset in periodic auctions. The $330 billion market seized up in February, leaving tens of thousands of investors either unable to sell the debt or able to sell it only at a loss.

Washington said Wells Fargo customers held $3.93 billion of auction-rate debt in February, and that many were still unable to access funds nine months later. The regulator also accused the bank of ignoring a subpoena for testimony by an employee.

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