SEC v. Wachovia Securities

SEC Complaint against Wachovia Securities

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This Complaint is in connection with a settlement related to auction rate securities.

The complaint alleges that Wachovia and A.G. Edwards & Sons, Inc. (whose broker-dealer operations were consolidated into Wachovia) misrepresented to customers that ARS were safe, highly liquid investments that were comparable to cash or money market instruments. Wachovia reinforced the perception of liquidity by routinely purchasing ARS from customers between auctions, without telling customers that Wachovia's willingness to do so depended upon the continued success of the auctions.

The SEC's complaint alleges that Wachovia became aware of mounting evidence in late 2007 and early 2008 that put the firm on notice that the risk of auction failures had materially increased. Wachovia continued to market ARS to its customers as highly liquid investments. On Feb. 14, 2008, Wachovia followed the lead of other broker-dealers and decided to stop supporting auctions. Without broker-dealer support, ARS auctions failed and thousands of Wachovia's customers were left holding billions of dollars in illiquid ARS, without any practical means of redeeming, selling or deriving value from them.

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Reference Info:Pleadings | Federal, 7th Circuit, Illinois | United States


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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