AG Brown sues Wells Fargo subsidiaries

April 23, 2009 6:00:58 PM PDT
California's attorney general is suing subsidiaries of San Francisco-based Wells Fargo, accusing them of fraud. The lawsuit is trying to get Wells Fargo to return more than $1.5 billion to thousands of customers.

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Wells Fargo isn't the only bank that sold these particular securities. But it may be the only one that hasn't paid investors their money back. So after waiting more than a year, the state is now suing for fraud.

Attorney General Jerry Brown says $1.5 billion is owed to 2,400 California investors who bought so-called auction rate securities from three Wells Fargo divisions, and based on what Brown says, were deceptive marketing tactics.

"Auction rate securities were sold on the idea that they were like a T-bill, and that is, you get an interest rate and whenever you want that money you get it back. The only difference is you had to wait eight days; it turns out it's not eight days anymore, it's months, it's maybe years. That's fraud, that's deception," said Brown.

Boris Levine says it happened to him. His San Francisco company invested $400,000 in Wells Fargo auction rate securities.

"Wells Fargo always represented that this investment was as liquid and stable as a money market account," said Levine.

Customers bought the securities through Wells Fargo, but the securities were bought and sold through auctions. In February 2008 when the economy started sliding, the auction market froze and investors couldn't get their money back.

"It may happen that our company may go out of business despite the fact that we have $400,000 in our money market-like account," said Levine.

Levine is one of the plaintiffs in the lawsuit. Attorney General Brown says he was almost a victim.

"As a matter of fact, at one time I owned auction rate preferred and I was told they were just like cash," said Brown.

Wells Fargo is disputing the claims in the lawsuit, and in a statement alluded to the nation's economic recession saying: "Wells Fargo could not have predicted these extraordinary circumstances, and even with the benefit of hindsight is not responsible for them."

Boris Levine disagrees.

"We're still hoping maybe Wells Fargo comes to its senses," said Levine.

The smallest investment was $25,000, but many went into the millions. And the alleged victims are across the spectrum, from small businesses to families.

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