Utah Investors Reimbursed $123 Million in Wells Fargo Securities Settlement

11.20.2009 by Elizabeth Ziegler

(KCPW News) Utah investigators helped secure a multi-state settlement with Wells Fargo to pay back investments frozen for nearly two years following the collapse of the auction rate securities market in 2008. Wells Fargo has agreed to return $1.3 billion to investors, including Salt Lake City resident Bob Bacon. He says he’s grateful for the State Division of Securities for helping him get his money back.

“The regulators really did their job,” Bacon says. “And they did it in a fashion that made these disagreements get resolved because of the regulations that you can’t do this and this was a product that was erroneously sold and you have to make these people whole.”

Hundreds of Utah investors will receive back $123 million they originally invested in auction rate securities. Utah Securities Division Director Keith Woodwell says this relatively new financial product was similar to bonds. But the interest rate for these securities was tied to the selling price at auctions, where financial institutions routinely traded them. This meant they yielded a slightly higher return than money market accounts or other similar products.

Woodwell says Wells Fargo and several other banks got into trouble when they marketed auction rate securities as safe and liquid, meaning investors could easily sell their holdings and recover their cash. But then the banking industry collapsed, the auctions stopped, and no one could get their money back. Woodwell says no one really knew how unsafe these investments were.

“So the sad but true story is: I don’t think that there was a good way for individuals to know what they were really getting into and what the risks really were with these auction rate securities because they weren’t told the truth about what the risks were,” Woodwell says.

Auction rate securities are in the same class of financial products blamed for the economic downturn. Congress is currently debating whether these products need more regulations.