Wells Fargo & Co. ordered to repurchase $94M of municipal auction-rate securities

Nathan Andrada – Fourth Estate Cooperative Contributor

New York, NY, United States (4E) – Wells Fargo & Co.’s brokerage unit was ordered by an arbitration panel to buy back around $94mn in municipal auction-rate securities from a New Jersey family.

The San Francisco-based bank’s brokerage unit, Wells Fargo Advisors LLC, is required to pay par value to investors that include James Cohen and a family trust for the securities, according to the arbitration panel of the Financial Industry Regulatory Authority.

The authority’s arbitration panel ordered the repurchase at par value, though it denied Mr. Cohen’s claim for compensation and punitive damages in a decision dated Dec. 24.

Mr. Cohen sits on Switzerland-based Dufry AG’s board, which acquired the Hudson News newsstand business in a 2008 deal.

Wells Fargo spokesman Tony Mattera said the bank is disappointed by the decision and is reviewing it. Cohen lawyer William Dahill of New York-based Wollmuth Maher & Deutsch LLP, did not immediately offer a comment.

Auction-rate securities consist of corporate bonds, municipal bonds and preferred stocks whose rates of return are determined through auctions done periodically.

During the 2008 credit crunch, the $330bn global market for auction-rate securities collapsed due to the exit of potential buyers. The crisis led to lawsuits and regulatory investigations alleging that underwriters and brokers misled buyers by saying that auction-rate securities as safe, cash-like investments.

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