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Paula T. Dow,
Attorney General

Division of Consumer Affairs
Thomas R. Calcagni, Acting Director

  Bureau of Securities
Amy Kopleton, Acting Chief

For Immediate Release:
May 16, 2011
For Further Information Contact:
Jeff Lamm, 973-504-6327
Neal Buccino, 973-504-6327
 


Goldman Sachs and Wells Fargo Investments
Agree to Repurchase $26.9 Million in
Auction Rate Securities from N.J. Investors,
Division of Consumer Affairs Announces

View Goldman Sachs settlement; View Wells Fargo settlement

NEWARK The New Jersey Division of Consumer Affairs, through its Bureau of Securities, has signed final Consent Orders requiring Goldman, Sachs & Co. ("Goldman Sachs") and Wells Fargo Investments, Inc., to repurchase auction-rate securities (ARS) from New Jersey clients to settle allegations that the firms sold ARS without disclosing known risks of the ARS market.

Although marketed and sold to investors as safe, liquid, and cash-like investments, ARS were actually long-term investments subject to a complex auction process that failed in early 2008, revealing illiquidity and lower interest rates than investors were promised.

Under the terms of the settlement, Goldman Sachs has repurchased $25.5 million in ARS sold to retail investors in New Jersey. Goldman Sachs also will pay $959,794 in civil penalties to the State. As part of its findings, the Bureau determined that Goldman Sachs failed to adequately train and supervise its salespeople to ensure that all of the firm's clients were aware of the auction market's mechanics and the potential illiquidity of ARS. Further, Goldman Sachs never disclosed increasing risks of owning or purchasing ARS to its customers even as the firm became aware of increasing strains in the ARS market.

Wells Fargo Investments has repurchased $1.37 million of the ARS it sold to retail investors in the state. The Bureau found, among other things, that Wells Fargo Investments failed to adequately train and supervise its agents who marketed ARS.

"The failure of these firms to disclose known risks ultimately harmed investors who purchased auction rate securities," Attorney General Paula T. Dow said. "State law requires disclosure of all material facts to investors, particularly when their hard-earned money is on the line."

These two Consent Orders represent the 11th and 12th settlements that the Bureau of Securities has reached with firms that sold ARS to New Jersey investors. To date, more than $2.8 billion of these assets have been repurchased or offered to be repurchased from New Jersey investors as part of settlements with firms that marketed and sold these products.

"Deception or concealment of facts by investment firms and their employees will not be tolerated," said Thomas R. Calcagni, Acting Director of the Division of Consumer Affairs. "An honest deal begins with clear and complete disclosure of risks to potential investors."

The investigation into Goldman Sachs' and Wells Fargo Investments' roles in the sale of these securities is part of a larger state-led effort to address problems in connection with ARS investments. Early in 2008, state offices began receiving complaints from investors throughout the country. As a result, 12 states, including New Jersey, formed a task force to investigate whether certain Wall Street firms had systematically misled investors when placing them in auction rate securities.

"Investors face many complex options and the decision-making process can be daunting. Those offering investment products are legally obligated to disclose all relevant terms and conditions, so potential investors can make fully-informed decisions," said Amy Kopleton, Acting Bureau Chief. "State securities regulators continue to work together to hold the responsible firms accountable for failing to provide these disclosures."

Bureau of Securities Investigating Attorney Peter C. Cole led New Jersey's efforts in securing these settlements and protecting Garden State investors.

The Bureau of Securities can be contacted toll-free within New Jersey at 1-866-I-INVEST (1-866-446-8378) or from outside New Jersey at 973-504-3600. The Bureau's website is located at www.njsecurities.gov.

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