California Attorney General Edmund Brown on Thursday sued Wells Fargo for $1.5 billion over alleged false statements made to investors about the liquidity of auction-rate securities, court documents showed.

California investors depended on the false and deceptive advice that these investments were as safe and liquid as cash, Brown said in a statement.

Auction-rate debt, often municipal or corporate bonds or preferred stocks with long-term maturities, has rates that reset in periodic auctions. Regulators have accused many brokerages of misleading investors into believing the debt was safe and the equivalent of cash because it could be sold at auction before its maturity date.

The case, filed in San Francisco Superior Court, accuses Wells Fargo Investments LLC, Wells Fargo Brokerage Services and Wells Fargo Institutional Securities of violating state securities laws.

The Wells units sold the securities using fraudulent or deceptive means, marketed the investments to unsuitable investors, and failed to adequately supervise and train sales agents who sold the investments, the suit said.

Californians owned almost 40 percent of the auction-rate securities sold by the three Wells defendants, Brown said.

About 2,400 Californians were unable to access their investments, ranging from $25,000 to millions of dollars, after the $330 billion market seized up in February of 2008.

Brown accused the bank of taking further advantage of investors by offering loan programs to those who were unable to access their money.

Brown said the suit was prompted by the Wells units' failure to restore the cash value of the securities to investors, as had UBS , Citigroup , Wachovia, and Merrill Lynch by August of 2008.

(Editing by Richard Chang and Steve Orlofsky)

California Investment Wachovia Citigroup