Wells Fargo & Co., the biggest bank on the U.S. West Coast, misrepresented to its customers the risks of buying $3.9 billion of auction-rate securities, a Washington state securities regulator claimed.
Wells Fargo "misrepresented and failed to disclose material information to their customers, and made unsuitable recommendations" to buy the securities, the Washington State Department of Financial Institutions said in an administrative order. The regulator said it will impose fines if the bank fails to comply with state securities laws. Wells Fargo can request a hearing on the allegations, the order said.
The $330 billion auction-rate market collapsed in February, sparking a series of regulatory probes into how brokerages marketed the long-term securities. State and federal regulators including New York state Attorney General Andrew Cuomo vowed to pursue dozens of brokerages in August after they forced eight Wall Street banks, including Citigroup Inc. and UBS AG, to agree to buy back about $45 billion of auction-rate securities.
"The state's claims and allegations do not accurately portray the facts," Charles W. Daggs, Chief Executive Officer of Wells Fargo Investments, said Wednesday in an e-mailed statement.
"We did not actively market or promote auction rate securities and we did not provide special incentives for brokers to sell them," Daggs said in the statement.