Wells Fargo Denies State's ARS Charge

Washington state securities regulators on Wednesday accused Wells Fargo (WFC Quote) of misleading investors in auction-rate securities, a charge the bank said it would "vigorously defend."

The Washington State Department of Financial Institutions said it would suspend Wells Fargo's broker-dealer and investment advisor licenses in the state if the company did not agree to make whole investors holding approximately $3.93 billion in auction-rate securities in February, when the auctions failed and markets became illiquid.

The state's accusations were similar to charges by regulators in New York and Massachusetts earlier this year that led to settlements with banks like Citigroup (C Quote), UBS (UBS Quote), Wachovia (WB Quote), Merrill Lynch (MER Quote), JPMorgan Chase (JPM Quote) and Goldman Sachs (GS Quote).

Wells Fargo, however, said it did not fall in the same category as those companies. Wells Fargo "did not actively market or promote auction rate securities, and we did not provide special incentives to brokers to sell them," Wells Fargo Investments CEO Charles Daggs said in a company statement. Wells Fargo also "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," the company said.

Auction-rate securities are debt instruments whose interest rates are set in regular auctions. Regulators have accused banks of marketing the securities as safe, cash-like investments, but the market became illiquid after banks stopped supporting the auctions in February.