SEC Announces Securities Laws Violations by Wachovia Involving Mortgage-Backed Securities
FOR IMMEDIATE RELEASE
2011-83
Washington, D.C., April 5, 2011 – The Securities and Exchange Commission today announced that Wells Fargo Securities LLC agreed to settle charges that Wachovia Capital Markets LLC engaged in misconduct in the sale of two collateralized debt obligations (CDOs) tied to the performance of residential mortgage-backed securities as the U.S. housing market was beginning to show signs of distress in late 2006 and early 2007.
The SEC’s order found that Wachovia Capital Markets violated the securities laws in two respects. First, Wachovia Capital Markets charged undisclosed excessive markups in the sale of certain preferred shares or equity of a CDO called Grand Avenue II to the Zuni Indian Tribe and an individual investor. As detailed in the order, Wachovia Capital Markets marked down $5.5 million of equity to 52.7 cents on the dollar after the deal closed and it was unable to find a buyer. Months later, the Zuni Indian Tribe and the individual investor paid 90 and 95 cents on the dollar. Unbeknownst to them, these prices were over 70 percent higher than the price at which the equity had been marked for accounting purposes.
Second, Wachovia Capital Markets misrepresented to investors in a CDO called Longshore 3 that it acquired assets from affiliates “on an arm’s-length basis” and “at fair market prices” when, in fact, 40 residential mortgage-backed securities were transferred from an affiliate at above-market prices. Wachovia Capital Markets transferred these assets at stale prices in order to avoid losses on its own books. The SEC’s order does not find that Wachovia Capital Markets acted improperly otherwise in structuring the CDOs or in the way it described the roles played by those involved in the structuring process.
Wachovia Capital Markets has since been renamed Wells Fargo Securities. Wells Fargo Securities agreed to settle the SEC’s charges by paying more than $11 million in disgorgement and penalties, much of which will be returned to harmed investors through a Fair Fund.
“Wachovia caused significant losses to the Zuni Indians and other investors by violating basic investor protection rules – don’t charge secret excessive markups, and don’t use stale prices when telling buyers that assets are priced at fair market value,” said Robert Khuzami, Director of the SEC Division of Enforcement.
Kenneth Lench, Chief of the SEC Division of Enforcement’s Structured and New Products Unit, added, “We are committed to uncovering misconduct involving complex financial instruments and opaque markets and, where appropriate, compensating defrauded investors for their losses.”
Without admitting or denying the findings, Wells Fargo Securities consented to the entry of an administrative order directing that it cease and desist from committing or causing any violations and any future violations of Section 17(a)(2) and (3) of the Securities Act of 1933. Wells Fargo agreed to pay disgorgement of $6.75 million and a penalty of $4.45 million. A total of $7.4 million of those amounts will be returned to investors pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002.
Brent Mitchell, Jeffrey Leasure, Jason Anthony and Reid A. Muoio, who are members of the Structured and New Products Unit in Washington, D.C., conducted the SEC’s investigation.
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For more information about this enforcement matter, contact:
Robert S. Khuzami
Director, SEC Division or Enforcement
202-551-4500
Lorin L. Reisner
Deputy Director, SEC Division of Enforcement
202-551-4787
Kenneth R. Lench
Chief, Structured and New Products Unit, SEC Division of Enforcement
202-551-4938
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4closureFraud.org
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SEC Order Against Wells Fargo Securities
So by getting money back (the investors). Isn’t that essentially writing down the loan (owed amount) for the home? Algebra says subtract from one side, must subtract from the other. GAAP do as well. And aside from that the cost to the share holders to dispute all this is tons more than what the write downs would do, there must be more to it. But really, did the settlement not pay off the lender for the borrower for paying more for the actual value. and rightfully by the party that took the $.
i’d like to see fuld ,mozilo, and dimon (to name a few) running out in their jammies and being hustled off into the back of a squad car.
i want my money.
do i have to get a SWAT team to help me?
sheila bair of the FDIC doesn’t seem to realize the extend of this fraud.
the fraudsters owe us trillions not billions of dollars.
you are not going to be able to silence us, sheila bair, or your predecessor who takes over in june.
pay back our lost money and the fraudsters ill-gotten gains that they made off of us!
these banks and their henchmen have the money to pay back what they have stolen from us.
make no mistake. they have billions or trillions at their disposal.
pay it back or we will sue you for many times that in damages!
Yeah…
None of the money will go back to the victims of the fraud. It will be used by the government for any number of its own programs. Or it will be used to help those who are not in foreclosure and or who have not lifted up a single cry against the fraud. I believe the amount of the settlement is about five billion dollars low. Looks like to me in the secret talks, the Gov regulators and the banks are working out a scheme to raise fees to now cover all these pay-out penalties and fines. So watch for all kinds of new fees and an increase on other use fees. With over 3 billion NSF per year all they have to do is increase the charge from $25 to $35 and then to $45 in incremental steps and there is a lot of cash comes rolling in. So watch for the increase in fees, ATM fees, and so forth. I believe the SEC has sold us out for this small amout of money.
whoops. wrong thread. i wlll re-post my last comment.
i guess lynn’s fraudsters COULD re-file but then they would risk another big foam core board enlargement on 60 Minutes. i wouldn’t do it if i were them.
they need to go off w/ their tail between their legs and not defraud other innocent people.
get a new line of work. anything to help their karma. they will have to answer for their dirty deeds….
uh, yeah, wachovia.
they laundered drug money for mexican drug cartels.
http://www.guardian.co.uk/world/2011/apr/03/us-bank-mexico-drug-gangs
how many other banks did the same?
Thats all they get too a slap on the rest and then in some cladenstien operation the money will just magically be returned.I feel like I’m at the Walt Disney horror flicks.I guess some people are just above jail time and the rest of us should just go along with it.After all it is the common business model.What a scam!!!