St. Paul Port Authority settles suit for a half-million

The St. Paul Port Authority will get nearly $500,000 back from a risky investment made by Wells Fargo, according to a settlement between the two sides.

The Port Authority sued the brokerage in March, alleging that it ignored investment protocols and purchased a "wholly unsuitable" investment product that went bust.

Wells Fargo denied the allegations.

The parties went into arbitration before the Financial Industry Regulatory Association, and Wells Fargo agreed to pay the Port Authority its initial investment of $489,409. Wells Fargo takes over the security, called Golden Key.

"It's a fair and reasonable settlement," said Eric Larson, general counsel for the Port Authority. "We're pleased to get the dispute behind us and move on, to work on the port's mission of creating and developing good jobs."

A Wells Fargo spokeswoman on Thursday declined to comment on the settlement.

The settlement is of interest to the city of St. Paul, which sued longtime broker Merrill Lynch last summer in a similar situation that resulted in a $1 million loss for the city. Merrill Lynch disputes the city's claim, noting that the investment was highly rated at the time of purchase.

The Port Authority's investment in Golden Key was a short-term product known as commercial paper. At the time of its sale in 2007, it was a $5 billion program.

Commercial paper is one of several investment types approved under Minnesota statute 118A, which was designed to make sure public money is put into secure investments. Governments and institutions usually buy and sell the short-term investments as a way to make money that's easily accessible.

Golden Key, however, happened to be backed in part by risky subprime mortgages. It also was based in the Cayman Islands, and state law only permits investment in U.S. or Canadian commercial paper that is deemed to be highly safe by multiple ratings agencies. Golden Key was highly rated when it came out and then bombed within weeks.

It was the investment product that St. Paul sued Merrill Lynch over. The city and Merrill Lynch are now in the early phase of arbitration over the matter.

"We will do everything possible to achieve a favorable outcome for the city's taxpayers," said City Attorney John Choi.