Texas Rules Wachovia Securities Must Pay $4 Million Fine Over Auction Rate Securities
In a deal struck March 17 with Texas Securities Commissioner Denise Voight Crawford, Wachovia Securities will pay a $4 million fine in connection to claims that it misled Texas investors about the safety of auction rate securities.
As part of the agreement, Wachovia is required to complete its repurchase of auction rate securities from Texas clients by June 30, 2009. Last August, Wachovia joined a number of investment firms and banks that reached settlements with securities regulators when it agreed to buy back $9 billion of auction-rates securities previously sold to some 40,000 investors and pay a $50 million fine.
According to the Texas commissioner’s order, Wachovia Securities “fostered the misconception” that auction rate securities were “cash like, conservative instruments.” In reality, the securities are dependent on the viability of a successful auction. If an auction fails, which happened when the ARS market collapsed in February 2008, investors are unable to access their money.
The ARS ruling in Texas follows a similar judgment in Missouri where Secretary of State Robin Carnahan sued Stifel, Nicolaus & Co. to force the St. Louis brokerage firm to step up its plans to buy back nearly $200 million in frozen auction rate securities from investors.
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