Lawsuit Pending Against Wells Fargo due to Illiquidity of Securities for Investors

San Francisco,CAThe effects of the fallout in the auction rate securities market is being felt everywhere across the country. A crop of lawsuits is springing up for brokerage firms that dealt in securities that are now in a state of illiquidity for investors. Wells Fargo and Co. and its non-bank subsidiary, Wells Fargo Investments that is based in San Francisco, CA are facing an auction rate securities lawsuit.

The accusation is that Wells Fargo deluded investors through advertising auction rate securities as having more of a safety net and more liquidity than they really had. The lawsuit is slated to be on a class action level. Auction rate securities work like bonds and are deemed to be long-term municipal debts. When sold they are packaged as short-term securites at periodic auctions.

Lawsuits similar in nature to that of Wells Fargo have surfaced in the past few weeks. Wachovia Corp., UBS AG, Raymond James Financial, Morgan Stanley, Merrill Lynch & Co., E*Trade Financial Corp., and Citigroup are all facing pending auction rate securities lawsuits. The whole auction rate securities market is facing trouble by the unexpected turn of events in the last few months within the auction rate market. The allegations against Wells Fargo show that when the securities were sold to the investors, Wells Fargo portrayed them in advertising as a sure bet with high liquidity. This would mean that the investors would have the ability to sell off the securities whenever they wished and receive their cash in return. The accusations include that Wells Fargo deemed the auction rate securities to be a viable choice over money market mutual funds.

The beginning of 2008 brought a dry spell to the auction rate securities market. This is due in large part to investors being caught between a rock and a hard place with the credit crunch. Investors have since become nervous about placing their money in complicated investments. Without additional investors placing money in the auction rate securities market, investors have met with the inability to sell their investments in the market to receive cash.

The North American Securities Administrators Association has received several hundred complaints just since February, 2008. Investors around the country have not been able to sell off their auction rate securities to receive cash they were expecting. Many of the investors have young children waiting to buy a home, small business proprietors, retired people, and families that have parents in care facilities. Many states are beginning to investigate the situation on how certain investment firms advertised and sold their auction rate securities. The North American Securities Administrators Association has found the complaints to be varied in nature, but the complaints boil down to the same issue. Investors thought they were investing in something with minimal risk, a safety net, and liquidity.

By: Delsia Hartford