Firm Obtains Arbitration Victory Requiring Wells Fargo to Repurchase, At Par, $94 Million of Illiquid Auction Rate Securities Marked Well Below Par From Investors
December 24, 2014
In November 2011, the Firm commenced a FINRA arbitration on behalf of a family of private investors as well as the family’s trust and company (“Claimants”) against Respondent Wells Fargo Advisors, LLC, seeking redress for misrepresentations and failures to disclose by the Respondent bank regarding Municipal Auction Rate Securities (“MARS”). An upheaval in the global auction rate securities market occurred in 2008, when failed auctions became prevalent as banks ceased supporting the auctions. Around that time, Claimants were advised by Respondent that they could take advantage of these failed auctions and the “high, above-market penalty rates” that would result, leading Claimants to purchase multiple hundreds of millions in MARS. Claimants were also advised that the call provisions of these MARS made them a safe investment. Wells Fargo’s advice on both points was inaccurate, and Wells Fargo failed to properly advise Claimants about the way in which MARS worked and the risks thereof. After following Respondent’s proposed strategy for less than one year, Claimants were stuck ultimately with $100 million in illiquid MARS for potentially up to 7-10 years, earning a negligible return (50 basis points and below) and marked well below par. After discovery beginning in early 2012, 25 FINRA arbitration hearing dates were conducted from August to December 2013. On December 24, 2013, the FINRA panel issued an award ordering Wells Fargo to repurchase, at par, all of the remaining MARS in Claimants’ accounts, which amounted to approximately $94 million face value for investments marked far lower. See James S. Cohen, et al. v. Wells Fargo Advisors, LLC, FINRA Arbitration Number 11-04241.
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