Wells Fargo Securities, previously Wachovia Capital Markets (WCM), has refused to admit or deny SEC findings indicating that WCM “violated basic investor protection rules” when it sold investors mortgage-backed securities in late 2006 and early 2007, but it is still paying the Zuni Indian Tribe and another individual investor damages that total more than $11 million[1]. WCM stands accused of making down $5.5 million of equity to 52.7 cents on the dollar when it was unable to find a buyer for the deal, but then marking the securities back up to 70 percent upon sale to the two parties. This was 70 percent higher than the price that the equity was recorded for accounting purposes.
And the trouble did not end there. WCM also failed to disclose that investments that it resold were not acquired at an “arms-length basis” or at “fair market prices,” but rather purchased from an affiliate well above market prices. WCM transferred assets at “stale prices,” said the SEC, in order to avoid recording losses on its own books. Investors again took the fall.
Wells Fargo Securities has accepted the fees and penalties on behalf of WCM in order to resolve the SEC claims[2]. Wachovia sold itself to Wells Fargo in 2008 after accepting an offer from Citigroup Inc. a mere week earlier. The sale enabled the company to avoid declaring bankruptcy when home mortgages soared, depositors rushed to withdraw funds and one of its loan providers added an adjustable-rate mortgage format that enabled borrowers to skip payments and instead add them to the loan balance.
Do you think that Wells Fargo is doing the right thing in resolving fallout from the bank’s “Wachovia Days?”
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[1] http://nationalmortgageprofessional.com/news24519/sec-announces-mbs-violations-wachovia
[2] http://www.bloomberg.com/news/2011-04-05/wells-fargo-agrees-to-pay-11-2-million-in-sec-settlement-over-cdo-sales.html
