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Investor files lawsuit against Wells Fargo

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San Antonio, TXA man by the name of Cory Walters filed a lawsuit against Wells Fargo, alleging that it is in violation of the Texas Business Commerce Code and the Federal Securities Act when he received financial direction from them, according to the lawsuit filed in San Antonio federal court. His suit is just one of many where people are filing lawsuits against their financial advisors.

Walters' story begins when he entered into Wells Fargo Investments looking to invest his money into a money market account or into certificates of deposits. He wanted an investment that had complete liquidity with no risk and when the broker told him that he could invest in bonds, he thought he had found something even better. However, what he says he found out was that he had invested in two close-end mutual funds that were recommended to him by the broker.

Stock BrokerWalters says that these two bonds were to produce a better return than certificates of deposit and they were said to be safe with complete liquidity, which they were for a while. The bonds dealt in auction-rate notes, which are debt instruments that are used by some funds to finance additional investments. Auction-rate securities are also issued as debt by institutions and municipalities.

But what Walters found, like others who had invested $300 billion of their money into these types of funds, is that he had one with non-liquid assets and a low return as the auction-rate securities diminished during the recent credit crunch and mortgage crisis.

The court papers show that Walters began investing in these securities in October 2005 by the advice of his broker. He then says that the broker continued to invest in the close-end funds until December 2007. Walters says that he was led to believe that the securities were safe and says that they were presented to him as bonds.

In March, Walters says that another investor told him that he was unsuccessful in cashing out his investment, which was the same type of investment as Walters'. This is when Walters' says that he called his broker and received the news that his money was technically frozen.

In the lawsuit, Walters says that he had a conversation with the broker in which the broker acknowledged in a February 1 conference call that they had heard about the issues regarding the types of funds that Walters had invested in. By the end of February, he says the broker had knowledge of the problem with auction-rate securities. However, Walters says he was not aware with the problem until he contacted the broker the second week of March. Walters said that during this conversation, the broker said that they had sold up to 300 more of these investments to other investors. As a result of this, Walters says that he was not fully informed of what his investments really were.

Walters then alleges that Wells Fargo made an offer to lend him money by using some of his assets as collateral. Walters turned down the offer after he found it unacceptable and turned down a second offer that would allow him to borrow money on a margin account agreement. He turned these down because he felt that if the investments had not performed the way that he was led to believe, then he was not going to risk losing his original investment and still have to pay back the amount of the loan.

At this time, Wells Fargo has not offered any comment because they say that it is their policy to not comment on ongoing litigation.

By Ginger Gillenwater



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