Wachovia Securities has finalized a deal with regulators in the District of Columbia on the repurchase of auction-rate securities to settle allegations the firm’s dealers misled investors about the safety of the market.
In a move that is being echoed in states across the nation, Wachovia has signed a consent order with the D.C. Department of Insurance, Securities and Banking (DISB) indicating it will complete or confirm the repurchase of the securities from District residents.
The firm will also pay a fine of $311,765 to the District.
Wachovia recently reached a $1.2 million agreement with regulators in Virginia over the same allegations. The agreement is part of a $50 million settlement negotiated by a multi-state task force of state regulators formed by the North American Securities Administrators Association. During an investigation, regulators found that Wachovia’s securities dealers failed to adequately inform customers and train employees on the risks associated with buying auction-rate securities.
While marketed and sold to investors as safe, liquid and cash-live investments, auction-rate securities are long-term investments subject to complex auction processes that failed in 2008, leading to illiquidity and lower interest rates for investors, according to the DISB.
Acting DISB Commissioner Gennet Purcell said the agency is “holding Wachovia accountable for engaging in unethical behavior by selling auction rate securities to District of Columbia investors without full disclosure of the risks involved.”
“This action sends a strong message that states will not tolerate unethical and unlawful behavior,” Purcell said in a statement.
Purcell added that “from the day these auctions first failed,” the DISB has been seeking relief and liquidity for investors and she is “pleased that Wachovia has agreed to do what’s right by repurchasing clients’ positions, and I expect other firms that sold these securities in the District of Columbia to do the same.”
The DISB said the consent order is the final step in the case against Wachovia, but is the first settlement the agency is negotiating related to auction-rate securities sold in the District by firms.
Wachovia settles auction-rate securities case with D.C. regulators via IFAwebnews .
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