SAN FRANCISCO (CN) - Three Wells Fargo affiliates cheated thousands of California investors by leaving them without access to more than $1.5 billion in auction-rate securities that were advertised as "safe and liquid as cash," Attorney General Jerry Brown said.
The state on Thursday accused Wells Fargo Investments, Wells Fargo Brokerage Services and Wells Fargo Institutional Securities of giving their customers "false and deceptive" financial advice. In his Superior Court lawsuit, the attorney general said the companies left 2,400 California investors - some of them with serious medical problems - without access to their cash when they needed it most.
Auction-rate securities are investments with long term maturity dates that banks sell as short-term investments equivalent to cash, with a slightly better rate of return then a bank account.
In February 2008, these auctions froze nationwide, and investors were no longer able to redeem them for cash, as promised.
Almost 40% of Wells Fargo's auction-rate securities were held by Californians, far more than any other state.
By August 2008, other financial institutions had shored up with investors by restoring the cash value of the securities. The three affiliates, however, have refused to do so, according to the complaint.
Wells Fargo allegedly refused to provide her own money to one woman who sold her house to pay medical bills for lung cancer treatment, and, at Wells Fargo's suggestion, put the money into the securities.
The state demands that Wells Fargo restore the cash value of the securities, disgorge profits, and seeks civil penalties of up to $25,000 per violation.
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