Articles Posted in Wells Fargo

Over two dozen bankers at Wall Street investment firms have been listed as co-conspirators in a bid-rigging scheme to pay lower than market interest rates to the federal and state governments over guaranteed investment contracts. The banks named as co-conspirators include JP Morgan Chase & Co, UBS AG, Lehman Brothers Holdings Inc., Bear Stearns Cos., Bank of America Corp, Societe General, Wachovia Corp (bought by Wells Fargo), former Citigroup Inc. unit Salomon Smith Barney, and two General Electric financial businesses.

The investment banks were named in papers filed by the lawyers of a former CDR Financial Products Inc. employee. The attorneys for the advisory firm say that they “inadvertedly” included the list of bankers and individuals and asked the court to strike the exhibit that contains the list. The firms and individuals on the co-conspirators list are not charged with any wrongdoing. However, over a dozen financial firms are contending with securities fraud complaints filed by municipalities claiming conspiracy was involved.

The government says that CDR, a local-government adviser, ran auctions that were scams. This let banks pay lower interests to the local governments. In October, CDR, and executives David Rubin, Evan Zarefsky, and Zevi Wolmark were indicted. They denied any wrongdoing. This year, three other former DCR employees pleaded guilty.

While the original indictments didn’t identify any investment contract sellers that took part in the alleged conspiracy, Providers A and B were accused of paying kickbacks to CDR after winning investment deals that the firm had brokered. The firms were able to do this by allegedly paying sham fees connected to financial transactions involving other companies.

Per the court documents filed in March, the kickbacks were paid out of fees that came out of transactions entered into with Royal Bank of Canada and UBS. The US Justice Department says the kickbacks ranged from $4,500 to $475,000. Financial Security Assurance Holdings Ltd divisions and GE units created the investment contracts that were involved.

Approximately $400 billion in municipal bonds are issued annually. Schools, cities, and states use money they get from the sale of these bonds to buy guaranteed investment contracts. Localities use the contracts to earn a return on some of the funds until they are needed for certain projects. The IRS, which sometimes makes money on the investments, requires that they are awarded on the basis of competitive bidding to make sure that the government gets a fair return.

Related Web Resources:
JPMorgan, Lehman, UBS Named in Bid-Rigging Conspiracy, Business Week, March 26, 2010
U.S. Probe Lays Out Bid Fixing, Bond Buyer, March 29, 2010
Read the letter to District Judge Marrero (PDF)
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According to Registered Rep magazine’s latest Broker Report Card, 98% of Edward Jones brokers say their securities firm is the best place to work. 78% of Merrill Lynch brokers ranked their investment firm as the number the one workplace.

Findings were compiled from Internet surveys taken by 898 captive brokers last October. Other results:

• 73% of Morgan Stanley Smith Barney representatives gave their firm the top spot.

Brokers are once again getting behind structured products, hoping that investors will bite. While sales of structured products during 2008’s 4th quarter-at $5.8 billion-was down 75% from the year’s 1st quarter, sales are starting to go up. One reason for this is that certain structured products, such as return-enhanced notes and principal protected notes, are considered safer than reverse convertibles, which led to some of the worst losses for investor.

Ideally, structured products are supposed to provide sturdy profits, while limiting losses, and brokers like them because the commissions are high. However, representatives must still account for why these products haven’t delivered the way investors were told they would. Many investors that bought structured products from Lehman Brothers, such as the Lehman principal-protected notes, incurred some large losses. Some of these notes were bought through a UBS Financial Services office in Houston, Texas.

Until the bear market struck, structured products did incredibly well, and sales almost doubled to $105 billion in 2007 before dropping to $70 billion last year when structured products, collateralized debt loans, and credit default swaps played a huge role in the global financial collapse.

Reverse convertibles are considered the most high-risk structured product-short-term bonds with a large interest that can seriously hurt investors if the underlying stock drops dramatically. Investors can end up with shares with a value far below the principal. For example, 78-year-old Dominic Annino says he invested $300,000 in IndyMac shares and JetBlue shares and lost money after the stocks fell. He filed an arbitration complaint with FINRA and claims that the broker that sold him the Wells Fargo reverse convertibles never fully explained to him what he was getting himself into. Still, brokers are hoping that last year’s stock market fiasco won’t discourage investors from trying structured products again.

Twice Shy On Structured Products? Wall Street Journal Online, May 28, 2009
Understanding Structured Products, Investopedia Continue Reading ›

Evergreen Investment Management Company, a Wells Fargo unit, has agreed to a $40 million settlement with federal and state regulators over allegations that it misrepresented securities in short-term bond funds. The settlement could be a sign that other fund providers, including Morgan Keegan, Charles Schwab Corp., and Fidelity Investments, may face similar lawsuits. Already bond providers are facing securities fraud lawsuits and arbitration claims from clients that experienced heavy losses from investing in debts that were either high risk or became illiquid.

The Massachusetts Securities Division and the Securities and Exchange Commission had accused Evergreen and one of its affiliates of inflating the value of its Ultra Short Opportunities Fund by up to 17%. The SEC says that this inflated value allowed the fund in 2007 and 2008 to be ranked high compared to other peer funds, when its true value should have placed it closer to the bottom of its class. At the time of the alleged violations, Evergreen was a Wachovia Corp. subsidiary.

With the housing crisis getting worse, Evergreen is accused of not using the information it had access to about mortgage-backed securities when engaging in the valuation process. Evergreen dealt with the fund by adjusting the prices on specific holdings, but only notified a select number of investors about the reasons for the re-pricings, as well as the possibility of adjustments in the future.

The investors that were given this information managed to leave the fund before their shares’ value went down even more. However, the other shareholders that did not receive the preferential information were left at a disadvantage. In June 2008, Evergreen closed the Ultra Short Fund, which, at the time, had $403 million in assets.

By agreeing to settle, Evergreen is not admitting to or disagreeing with the SEC’s findings. As part of the agreement, the Wells Fargo unit will pay $33 million to fund shareholders, $3 million in disgorgement of ill-gotten gains, a $4 million SEC penalty, and $1 million to Massachusetts.

Evergreen settles state, US charges for $40 mln, Reuters, June 8, 2009
Settlement in Mutual Fund Case, NY Times, June 8, 2009 Continue Reading ›

California Attorney General Edmund G Brown, Jr. is suing Wells Fargo Investments LLC, Wells Fargo Institutional Securities, and Wells Fargo Brokerage Services for $1.5 billion. Brown is accusing the Wells Fargo affiliates of violating state securities laws and misleading California investors with false statements about auction-rate securities.

According to the California Attorney General’s securities fraud lawsuit, the Wells units engaged in fraud and deception to sell the securities, neglected to properly train and supervise the agents that sold the ARS, marketed the securities to investors that shouldn’t have been investing in them, and regularly misrepresented the securities when marketing them.

Brown says that nearly 40% of the ARS that the Wells defendants sold are owned by Californians. ARS investors included individuals, non-profits, small businesses, and others that were never fully informed about the risks of investing in theses securities.

ARS sales pitches by Wells Fargo representatives reportedly continued even though there were warnings as early as 2005 from the Financial Accounting Standards Board and others that auction-rate securities should not be considered cash-like equivalents. In November 2007, a Wells Fargo Bank’s Trust Department reportedly sent a memo warning against buying ARS.

Following the collapse of the $330 billion ARS market in February 2008, some 2,400 Californians, who were told that their ARS were liquid like cash, were unable to access their investments that ranged in worth from $25,000 to millions.

Brown says he is suing the Wells units because unlike Citigroup, UBS, Wachovia, and Merrill Lynch, the affiliates have not been able restore the securities’ cash value. The California Attorney General wants Wells Fargo to restore the securities’ value, disgorge any associated profits, and pay civil penalties at $25,000/violation.

Wells Fargo Chief Executive Officer Charles W. Daggs says the investment bank is disputing the claims made in the California Attorney General’s lawsuit. He also noted that Wells was among the first in the investment bank industry to voluntarily give clients with frozen securities significant liquidity. Daggs says that since April 2008, these clients have been able to access 90% of their ARP holdings’ par value via non-recourse loans with favorable rates.

Related Web Resources:
Calif. AG sues Wells Fargo for $1.5 billion, News Daily, April 23, 2009
Read the Attorney General’s Complaint Against Wells Fargo (PDF)
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Earlier this month, the chief executives of the eight biggest banks in the United States, including Citigroup, Bank of America, Wells Fargo, and Goldman Sachs addressed the House Financial Services Committee in an attempt to persuade US lawmakers that billions of dollars in bailout funds were used as intended-to increase consumer and business lending and improve balance sheets. The banking heads also admitted to certain mistakes and promised that compensation in the future would be commensurate with performance.

Under the Capital Purchase Program, the federal government gave the banks $125 billion in cash infusions in November. Bank of America and Citigroup also received $20 billion each in Treasury investments.

At the session, some of the bank executives gave testimony regarding activities performed since they received the government’s financial assistance. For example, Kenneth Lewis, Bank of America’s chief executive, says that during 2008’s fourth quarter, the bank committed to $115 billion in new loans.

Vikram Pandit, Citigroup’s chief executive, said his bank had provided $75 billion in new loans for the fourth quarter. He also said that Citigroup had used $36.5 billion to expand personal loans, mortgages, and credit lines for businesses, families, and individuals, as well as to create secondary market liquidity. He said Citigroup had cancelled an order for a $50 million jet.

While the executives were contrite, Committee Chairman Barney Frank criticized them for giving executives bonuses, in addition to salaries. Lawmakers also asked the banks’ executives to stop home foreclosures until the Obama Administration can executive a $50 billion plan on mortgage modifications and other assistance for borrowers that are experiencing problems.

John Stumpf, Wells Fargo’s chief executive, said that his bank could hold off on foreclosing on loans in which it is the investor or owner. Pandit said Citigroup could support a moratorium for borrowers that live on properties facing foreclosure. Lewis said Bank of America could place a moratorium on home foreclosure for two or three weeks.

Related Web Resources:
Foreclosures halt by Bank of America, Citigroup, JPMorgan, Wells Fargo,, February 14, 2009
Fed Urges Banks to Put Bailout Funds Into Loans, Not Dividends,, February 24, 2009 Continue Reading ›

The California Court of Appeal has remanded a lawsuit filed by an elderly woman accusing Wells Fargo of defrauding her and her husband. The case now goes back to the Los Angeles Superior Court, where a judge must determine whether Wells Fargo engaged in fraud when its employees executed its agreement with the couple.

Los Angeles Superior Court Judge Shook had previously concluded that the arbitration clause in the brokerage agreement between Ronnie and Ira Brown and Wells Fargo Bank, NA was unconscionable. However, he had decided that it was up to a jury to decide whether constructive fraud occurred. If Shook now decides that Wells Fargo did engage in the alleged fraud, the arbitration clause and any other portion of the agreement could then be determined unenforceable.

Sometime between 2003 and 2004, Wells Fargo assigned company vice president and trust administrator Lisa Jill Tepper to serve as Ira and Ronnie Brown’s “relationship manager.” Ira Brown, who was 93 at the time and suffering from health issues (he has passed away since), founded the Save-On Drug chain. His wife, Ira, was 81.

Tepper, who is now a defendant in this case, visited the Browns regularly to assist with their financial paperwork. She eventually began providing the couple with investment advice. At one point, she recommended that they open a Wells Fargo brokerage account because she believed that their other investments were inappropriate due to their advanced age. Through Tepper, the couple began working with Wells Fargo stockbroker Jack Harold Keleshian, who is now also a defendant in the case.

With Tepper and Keleshian’s help, the couple opened up a number of investment accounts, including a “Brown Family Trust.” An arbitration clause was included among the documents.

In 2006, Ronnie sued Wells Fargo. She claimed that when she was under duress while caring for her ailing husband, the bank pressured her into selling nearly 75,000 stock shares at $24.71. She says Keleshian told her that if she didn’t sell, the stock’s value would drop dramatically.

Instead, the stocks increased in value while Ronnie experienced an increase in capital gains taxes. Ronnie claims her damages were over $1 million (including Wells Fargo’s commission from the stock sale). Wells Fargo wants to resolve the dispute through arbitration.

Related Web Resources:

C.A. Orders Hearing on Claim Bank Defrauded Drug Chain Founder,, November 26, 2008
Brown v. Wells Fargo Bank N.A., Cal. Ct. App., No. B196258 (PDF)
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The city of Cleveland, Ohio is suing 21 financial institutions for hundreds of millions of dollars in damages caused by subprime lending and securitization. The defendants named in the lawsuit are:

• Deutsche Bank Trust Company • Ameriquest Mortgage Company • Bank of America Corporation • The Bear Stearns Companies • Citigroup, Inc.

• Countrywide Financial Corp.

NASD levied a fine of $250,000 against Wells Fargo Securities LLC and $40,000 against its former research director, plus other sanctions, for failing to disclose that the lead analyst on reports issued on a company had accepted a position with that company.

The research reports concerned Cadence Design Systems, which designs semi-conductors for use in the global electronics market. According to the NASD, the analyst had applied for a job with that company prior to issuance of a report in 2005, and had two job interviews prior to issuance of others, none of which was disclosed in the reports.

The NASD’s sanctioning order states that the analyst was then offered a position at Cadence to earn over $300,000, plus Cadence stock and options, which she disclosed to the Wells Fargo and its head of research. Yet, weeks later Wells Fargo published a third research report favorable to Cadence, without disclosure of the hiring.

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