“The State’s claims and allegations do not accurately portray the facts,” said Charles W. Daggs, CEO of Wells Fargo Investments, LLC. “We did not actively market or promote auction rate securities, and we did not provide special incentives to brokers to sell them. For over 20 years, the auction rate markets have operated with the full knowledge of regulators to the significant benefit of investors and issuers, including issuers from the State of Washington. We’ve long maintained that the issuers and underwriters of auction rate securities for which auctions began failing in February 2008 are the ones who must lead the industry in resolving these problems."
Wells Fargo has told the DFI that its involvement in the ARS market was significantly different from the underwriters who have settled with various regulators and agreed to buy back certain customers’ securities.
- Wells Fargo Investments, LLC (WFI), a retail broker-dealer, did not actively market or promote ARS to its brokers or clients, or provide special incentives to financial consultants to sell ARS.
- WFI did not act as an underwriter or auction dealer, and did not enter bids on behalf of the firm for the purpose of supporting auctions that otherwise would have failed.
- WFI did not deal directly with ARS underwriters, but rather participated in auctions through a third-party intermediary. WFI did not have information about other firms’ inventories or financial condition, did not receive advance notice of their abrupt decision to withdraw capital from the ARS markets, and did not even receive the full dealer compensation earned by direct auction participants.
- In the aftermath of the crisis, WFI provided significant liquidity to retail clients who hold Auction Rate Preferred Securities (ARPs) through a loan program announced to clients in April. WFI’s ARP clients have access to 90% of the par value of their ARPs holdings on a non-recourse basis.
- Wells Fargo Brokerage Services, LLC (WFBS) and Wells Fargo Institutional Securities, LLC (WFIS), which primarily serve institutional clients by providing public finance, trading and institutional sales capabilities, voluntarily implemented ARS disclosures for their customers.
- None of the Wells Fargo companies characterized ARS as “cash” or “cash equivalents” on brokerage statements.
- WFBS and WFIS assisted various ARS issuers following the collapse of the ARS market in February 2008, in successfully refinancing their ARS, originally underwritten by other broker-dealers, totaling in excess of $650 million par value.
- Wells Fargo Bank, N.A. played no role in the sale of ARS by Wells Fargo broker-dealers.
“Before the current liquidity crisis, there were few auction failures over the past 20 years,” said Daggs. “The sudden collapse of the auction-rate markets was caused by unprecedented events of a magnitude significant enough to impact the entire global economy, as well as decisions by investors and underwriters to withdraw their capital from the market. We were not aware of the extent to which some firms were supporting the market, or their decision to stop doing so. Wells Fargo could not have predicted these extraordinary circumstances, and even with the benefit of 20/20 hindsight is not responsible for them.
“Last April, Wells Fargo led the industry in helping clients affected by the crisis by voluntarily providing significant liquidity to clients holding ARPs. Since April, these clients have had access to 90% of the par value of their ARP holdings through non-recourse loans at favorable rates. We are not aware of any other similarly situated company that voluntarily provided a comparable loan program or took action on behalf of their clients before Wells Fargo implemented its loan program. We also have worked individually with clients who have special needs, and will continue to do so,” said Daggs.
Wells Fargo & Company is a diversified financial services company with $622 billion in assets, providing banking, insurance, investments, mortgage and consumer finance through almost 6,000 stores and the internet (wellsfargo.com) across North America and internationally. Wells Fargo Bank, N.A. is the only bank in the U.S., and one of only two banks worldwide, to have the highest possible credit rating from both Moody’s Investors Service, “Aaa,” and Standard & Poor’s Ratings Services, “AAA.” (10/15/08)