New Jersey to Receive $561,458 in Wachovia Settlement
Multistate Enforcement Action Alleged Failure to Supervise Agents and
Failed to Maintain Required Electronic Communications
NEWARK – Wachovia Capital Markets LLC ("Wachovia") has paid the New Jersey Bureau of Securities civil monetary penalties of $561,458 under the terms of a settlement with the Bureau and other state securities regulators, Acting Attorney General Anne Milgram, Acting Consumer Affairs Director Stephen B. Nolan and Bureau of Securities Chief Franklin L. Widmann announced today.
The settlement resolves allegations of potential conflicts of interest between Wachovia’s research analysts and investment bankers. It includes $518,668 in penalties for failure to supervise its employees, and $42,790 in penalties for failure to preserve required records.
"Consumers must have factually accurate and unbiased information when deciding how to invest their hard-earned dollars," said Acting Attorney General Milgram. "Truth is a precious commodity. The ratings assigned to stocks must be accurate so investors can make informed decisions."
Wachovia also paid money into a fund administered by the Investor Protection Trust, a non-profit corporation set up to make grants of investor education money paid by the largest Wall Street firms in connection with the analyst research settlements in 2002-3. The Wachovia matter concludes the last of 13 such settlements.
"I am pleased that our Bureau of Securities played such an important role in the successful resolution of this case," said Acting Director Nolan. "The payment of funds for investor education will help ensure investors have the knowledge and skills they need to make the right decisions."
The settlement resolves a multistate investigation of Wachovia Capital Markets, based in Charlotte, North Carolina, which operates Wachovia Corporation’s institutional brokerage and capital markets businesses. The investigation included state securities regulators from Nebraska, Virginia and North Carolina with considerable assistance and contributions from the New Jersey Bureau of Securities and the states of Alabama, Connecticut, Georgia, Maine and Utah.
The settlement resolves the following charges:
• State investigators determined that Wachovia failed to supervise its research analysts; and
• Wachovia failed to maintain and produce in a timely manner certain books and records as required by law. Wachovia also failed to maintain a system that allowed it to locate and retrieve back-up tapes for its email system.
According to the overall terms of the settlement, Wachovia Capital Markets will pay $20 million to the state jurisdictions (50 states, plus the District of Columbia and Puerto Rico) for failing to supervise its employees in connection with potential conflicts of interest; $1.65 million for failing to preserve certain books and records; and $3 million to be used for investor education paid to the Investor Education Fund in Washington, D.C.
"The Wachovia case illustrates once again how leveraging the resources of state securities regulators around the country benefits investors nationwide and each of the states." Widmann said. "New Jersey benefits directly from the work of our colleagues in these other states by having another major firm pay for its misdeeds and change its behavior."
New Jersey had a key leadership role in the research analyst cases, including Wachovia. Bureau of Securities Chief Widmann was the Co-chair of the NASAA Analyst Research Task Force Steering Committee that organized and coordinated the efforts of 45 states in the investigations of 13 of research analyst conflicts of interest cases, including the Wachovia matter. Widmann also directly assisted the lead states on the Wachovia case.
In addition to the Wachovia matter, the analyst investigations resulted in settlements with Bear Stearns, Citigroup, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, J.P. Morgan Chase, Lehman Brothers, Merrill Lynch, Morgan Stanley, Thomas Weisel Partners, UBS Financial Services/UBS Warburg and U.S. Bancorp Piper Jaffray.
The Bureau of Securities received nearly $13 million in civil monetary penalties in connection with the research analyst cases. Overall, the research analyst cases resulted in the $1.4 billion dollar "global" settlement between the firms and the state regulators, the U.S. Securities and Exchange Commission, NASD and New York Stock Exchange. The SEC, NASD and NYSE did not participate in the Wachovia matter. The 52 state jurisdictions received more than $487 million in civil penalties as a result of the global settlement.
The matter was handled at the New Jersey Bureau of Securities by Bureau Chief Franklin Widmann. Deputy Attorney Victoria Manning of the Division of Law assisted the Bureau.