By Jonathan Stempel
NEW YORK, Dec 3 (Reuters) - Wells Fargo & Co intends to fight plans by Washington state's banking regulator to impose a fine and seek restitution for customers it says were misled into buying auction-rate debt.
The Washington Department of Financial Institutions on Nov. 20 issued an order in which it concluded that San Francisco-based Wells Fargo misrepresented the debt as safe and the equivalent of money market funds, and failed to properly supervise or educate the salespeople who sold it.
Washington said it intends to order the bank to offer to buy back the debt at face value, and to pay a fine. Wells Fargo has the right to request a hearing to mount a defense before a penalty is imposed.
Auction-rate debt has rates that reset in periodic auctions. The $330 billion market seized up in February, leaving tens of thousands of investors either unable to sell the debt or able to sell it only at a loss.
Washington said Wells Fargo customers held $3.93 billion of auction-rate debt in February, and that many were still unable to access funds nine months later. The regulator also accused the bank of ignoring a subpoena for testimony by an employee.
Brokerages have agreed with regulators to buy back well over $50 billion of auction-rate debt, and to pay in excess of $500 million in fines. A 12-state task force has also been examining auction-rate practices in the industry.
Wells Fargo said in a statement on Wednesday it intends to defend vigorously against Washington's charges.
'The state's claims and allegations do not accurately portray the facts,' said Charles Daggs, chief executive of Wells Fargo Investments LLC. 'We did not actively market or promote auction-rate securities, and we did not provide special incentives to brokers to sell them.'
Daggs added that Wells Fargo 'could not have predicted' the auction failures, 'and even with the benefit of 20/20 hindsight is not responsible for them.'
Among the companies to settle with regulators is Wachovia Corp, which agreed in August to buy back $8.8 billion of auction-rate debt.
Wachovia in October agreed to be acquired by Wells Fargo in a transaction expected to close by year end. The merger would create the fourth-largest U.S. bank by assets.
Wells Fargo shares closed up $2.21, or 8.5 percent, at $28.10 on the New York Stock Exchange on Wednesday.
(Reporting by Jonathan Stempel; Editing by Gary Hill) Keywords: WELLSFARGO/AUCTIONRATE (jon.stempel@thomsonreuters.com +1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2008. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, Dec 3 (Reuters) - Wells Fargo & Co intends to fight plans by Washington state's banking regulator to impose a fine and seek restitution for customers it says were misled into buying auction-rate debt.
The Washington Department of Financial Institutions on Nov. 20 issued an order in which it concluded that San Francisco-based Wells Fargo misrepresented the debt as safe and the equivalent of money market funds, and failed to properly supervise or educate the salespeople who sold it.
Washington said it intends to order the bank to offer to buy back the debt at face value, and to pay a fine. Wells Fargo has the right to request a hearing to mount a defense before a penalty is imposed.
Auction-rate debt has rates that reset in periodic auctions. The $330 billion market seized up in February, leaving tens of thousands of investors either unable to sell the debt or able to sell it only at a loss.
Washington said Wells Fargo customers held $3.93 billion of auction-rate debt in February, and that many were still unable to access funds nine months later. The regulator also accused the bank of ignoring a subpoena for testimony by an employee.
Brokerages have agreed with regulators to buy back well over $50 billion of auction-rate debt, and to pay in excess of $500 million in fines. A 12-state task force has also been examining auction-rate practices in the industry.
Wells Fargo said in a statement on Wednesday it intends to defend vigorously against Washington's charges.
'The state's claims and allegations do not accurately portray the facts,' said Charles Daggs, chief executive of Wells Fargo Investments LLC. 'We did not actively market or promote auction-rate securities, and we did not provide special incentives to brokers to sell them.'
Daggs added that Wells Fargo 'could not have predicted' the auction failures, 'and even with the benefit of 20/20 hindsight is not responsible for them.'
Among the companies to settle with regulators is Wachovia Corp, which agreed in August to buy back $8.8 billion of auction-rate debt.
Wachovia in October agreed to be acquired by Wells Fargo in a transaction expected to close by year end. The merger would create the fourth-largest U.S. bank by assets.
Wells Fargo shares closed up $2.21, or 8.5 percent, at $28.10 on the New York Stock Exchange on Wednesday.
(Reporting by Jonathan Stempel; Editing by Gary Hill) Keywords: WELLSFARGO/AUCTIONRATE (jon.stempel@thomsonreuters.com +1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2008. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.