Wachovia to Settle MBS-Related Charges

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digest and Individual Retirement Plans Guide; co-author, Dodd-Frank Wall Street Reform and Consumer Protection Act—Law, Explanation and Analysis, April 6, 2011.

The Securities and Exchange Commission has 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 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 finds that Wachovia Capital Markets willfully violated Sections 17(a)(2) and (3) of the Securities Act of 1933 in two respects.

First, Wachovia Capital Markets charged undisclosed excessive markups in the sale of certain of the preferred shares, or equity, of Grand Avenue II to the Pueblo of Zuni and the Pension Plan and Trust for Employees of the Pueblo of Zuni and an individual investor.

Second, Wachovia Capital Markets represented to investors in Longshore 3 that it acquired assets from affiliates “on an arm’s-length basis” and “at fair market prices” when in fact certain assets were transferred from an affiliate at above-market prices. 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 Sections 17(a)(2) and (3) of the Securities Act of 1933.