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SAN FRANCISCO (CBS 5 / AP / BCN) ― California Attorney General Jerry Brown on Thursday accused subsidiaries of Wells Fargo & Co. of fraud in a lawsuit alleging the bank improperly marketed $1.5 billion in risky investments as "safe and liquid as cash."

The lawsuit filed in San Francisco Superior Court accuses Wells Fargo Investments LLC, Wells Fargo Brokerage Services LLC and Wells Fargo Institutional Services LLC of wrongly assuring investors that the investments were safe in deceptive advertising.
 
The suit is the latest of a flurry of legal actions taken against banks nationwide related to the February 2008 collapse of the $330 billion "auction rate securities" market.

At a news conference, Brown said more than 2,400 California investors were victimized by bank sales employees who, up until the fall of 2008, had marketed Wells Fargo auction-rate debt securities and auction-rate preferred securities as liquid, or available to be exchanged for cash at any time.

"These securities were marketed as liquid,'' Brown said. "Wells Fargo's affiliates promised investors auction-rate securities were as safe and liquid as cash, when in fact they were not, and now investors are unable to get their money when they need it. These customers are still waiting for their money.''

Brown recounted the story of a woman in Southern California who, needing to retain access to cash investments to pay for ongoing lung cancer treatments, was unable to access her money when a Wells Fargo associate advised her to transfer cash from savings to auction rate securities, and was never informed about the true nature of the investment.

Not willing to expand further on many details of the case, Brown said he would seek to have San Francisco-based Wells Fargo buy back the $1.5 billion invested by Californians who can't fully access their accounts.

The lawsuit also seeks fines that could amount to hundreds of millions of dollars, Brown added.

He said misrepresentation of financial products on the part of institutions selling them to individuals was "part of the massive financial bubble that burst.''

The auction-rate securities market involved investors buying and selling instruments that resembled corporate debt, except the interest rates were reset at regular auctions, some as often as once a week. A number of companies invested in the securities because they could treat their holdings almost like cash.

The market's collapse froze the accounts of the investors and prevented them from withdrawing funds. Soon after, federal and state officials, including New York Attorney General Andrew Cuomo, launched investigations and filed lawsuits.

Many of the banks have since agreed to buy back their customers investments — but Brown said that Wells Fargo Investments, Wells Fargo Brokerage Services and Wells Fargo Institutional Services had not followed suit.

Wells Fargo Investments chief executive officer Charles Daggs denied the bank acted improperly.

"We fully understand and deeply regret the effects this prolonged liquidity crisis has had on our clients," Daggs said. "Wells Fargo could not have predicted these extraordinary circumstances, and even with the benefit of hindsight is not responsible for them."

Daggs said the bank was lending effected customers money at "favorable rates" and working with clients with "special needs."

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