Wells settles fraud case

The banking giant has agreed to buy back $1.4 billion in securities that it sold to thousands of customers, based on what CA Attorney General Jerry Brown's office called "misleading advice." In filing suit against Wells, Brown alleged securities fraud because these auction-rate securities had been billed as being as safe as cash. In normal times, these types of securities are considered pretty safe, but not when the market goes into a freefall, as it did in early 2008. Under no circumstances should they be considered as safe as cash. From the LAT:

In the Wells Fargo case, the state alleged that the bank's sales personnel weren't properly trained in the intricacies of auction-rate securities and that the risks of the investments weren't explained to clients. Investors, which included retirees, put up amounts ranging from $25,000 into the millions of dollars, the suit says. In one case, Brown said, a Bay Area company shifted $400,000 in working capital from a money market account to auction-rate securities. The business intended to use the money to expand, according to the attorney general's office, but when the auction-rate market failed, the company couldn't access the money and instead was forced to lay off workers.