SAN FRANCISCO, April 23 (UPI) -- California Thursday filed suit against Wells Fargo & Co., accusing the bank of taking part in fraud involving $1.5 billion in risky securities.
State Attorney General Jerry Brown filed suit in state court in San Francisco against three Wells Fargo subsidiaries, alleging they told California investors the questionable securities were as safe as cash, the Los Angeles Times reported Thursday.
In an interview with the newspaper, Brown said customers bought the securities with the understanding they could "get their money back in eight days."
"Now, it turns out they were not like cash and people can't get their money back even after many, many months, and they're mad as hell," he said.
The lawsuit is intended to recover money invested by about 2,400 Californians in instruments known as auction-rate securities. Interest rates on such products are reset -- sometimes on a weekly basis -- through auctions and investors are drawn to them because they can generate a percentage point or more in interest more than typical money market products, the newspaper said.
Many purchasers found after the market for auction-rate securities tanked in February 2008 they were unable to sell the securities -- or if they could sell they'd take a loss.
Harry Newton, a private investor, told the Times auction-rate preferred securities "is the largest fraud ever perpetuated by Wall Street on investors."
"It dwarfs all frauds in history, including (convicted swindler Bernard) Madoff," Newton said.
Wells Fargo, which faces similar claims in Washington state, issued a statement saying it has taken steps to help auction-rate securities customers. Charles W. Diggs, head of Wells Fargo Investments, said in a statement the company "fully understand(s) and deeply regret(s) the effects this prolonged liquidity crisis has had on our clients."
"Wells Fargo could not have predicted these extraordinary circumstances, and even with the benefit of hindsight is not responsible for them."