Securities Regulators Announce Settlement With Wachovia Over Sale of Auction Rate Securities

WASHINGTON, D.C. August 15, 2008 — Karen Tyler, President of the North American Securities Administrators Association (NASAA), today announced that a settlement in principle has been reached between Wachovia Securities and state and federal securities regulators.

The settlement will provide thousands of Wachovia clients with access to billions of dollars in funds that have been frozen in the auction rate securities market (ARS).  The agreement follows an investigation led by the Office of the Missouri Secretary of State into complaints from investors that Wachovia misled them by portraying ARS securities as cash equivalents.  The ARS markets froze in February this year, leaving thousands of investors across the country without access to their money.

“This settlement is yet another important step in our ongoing effort to make sure that investors across the country quickly regain access to their funds that were placed in auction rate securities,” said Tyler.  “Missouri Secretary of State Robin Carnahan and her staff in the Securities Division deserve enormous credit for spearheading the investigation and leading the negotiations that resulted in an excellent settlement.”

Under the terms of the agreement announced today, Wachovia will repurchase illiquid ARS securities from all non-profit charities, as well as all individuals and businesses with account or household values up to $10 million, no later than November 28, 2008.  All other investors will be able to redeem their ARS securities no later than June 30, 2009.

Wachovia will also:

  • Fully reimburse all retail investors who sold their auction rate securities at a discount after the market failed in February 2008;
  • Consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by retail investors as a result of not being able to access their funds, in which Wachovia will not contest its liability related to the sale of ARS securities; and
  • Reimburse all refinancing fees to municipal issuers who issued auction rate securities through Wachovia since August 1, 2007, and who refinanced those securities after the market failed.

In addition, as part of the settlement, Wachovia will pay a $50 million penalty to be apportioned among the states.

“Today’s settlement is a major step towards making these investors whole,” Carnahan said.  “I have received hundreds of calls from Missourians and investors around the nation who need their money to make medical payments, run their businesses, or retire as planned.  I am pleased that six months of uncertainty and worry is over and that these investors will soon get their money back.”

Tyler and Carnahan both thank the New York Attorney General for their efforts in achieving today’s settlement, as well as the enforcement staff of the Securities and Exchange Commission for their cooperation in the auction rate securities investigations.

The investigation into Wachovia’s role in the marketing of ARS securities is part of a larger state-led effort to address problems in connection with ARS securities.  Earlier this year, state offices began receiving complaints from Main Street investors throughout the country.  As a result, in April, NASAA announced the formation of a multi-state Task Force, comprised of securities regulators in 12 states, to investigate whether the nation’s prominent Wall Street firms had systematically misled investors when placing them in ARS securities.

The members of the NASAA Task Force are continuing their investigations into possible misconduct by other firms.

NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico.

For more information:
Bob Webster, Director of Communications

Rex Staples, General Counsel

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