Articles Posted in Wachovia

Barclays (BARC) will pay $325M to resolve two civil cases related to residential mortgage-backed securities sales that took place during the housing boom. The plaintiff of both securities lawsuits is the National Credit Union Administration, which regulates federal credit unions.

A number of credit unions under NCUA’s purview failed after they invested in mortgage-backed securities. The union believes that the banks that underwrote the securities misled buyers.

RMBS are investments that pool the returns and risks of personal mortgages. The quality of these securities came into question several years ago when homeowners began to default on the mortgages backing them. NCUA believes that it is its statutory duty to obtain recoveries for credit unions while making sure that customers are protected.

By settling, Barclays is not admitting fault. According to The New York Times, the bank sponsored and underwrote approximately $35M in mortgage securitizations in the US and sold $19.4B in loans that were originated and sold to third parties by affiliates of an entity that it had acquired. Upon completion of this settlement, NCUA will dismiss pending litigation against Barclays in district court in Kansas and New York.

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LBBW Luxemburg SA has filed a securities fraud lawsuit against Wells Fargo & Co. (WFC) and its unit Wachovia Corp. over an alleged $1.5 billion securities fraud scam. The case involves transaction in 2006 involving Wells Fargo selling what they allegedly touted as securities with high ratings to LBBW and other customers. LBBW, a Landesbank Baden-Wurttemberg subsidiary, bought $40 million of these residential mortgage-backed securities.

Now, the European bank is contending that the underlying mortgages were riskier than represented and not worth their buying price. Within a year, the securities had defaulted. LBBW is alleging common law fraud, breach of contract, constructive fraud, negligent misrepresentation, and breach of fiduciary duty.

Per the plaintiff’s attorneys, the alleged financial fraud was discovered after the SEC investigated a $5.5 million investment that the Zuni Indian Tribe’s employee pension fund made. The Securities and Exchange Commission had accused Wachovia of selling overpriced equity in Grant Avenue II, a collateralized debt obligation, to the tribe and another investor. The Commission contended that after marking down some of the equity to 52.7 cents on the dollar, Wachovia charged 90 cents and 95 cents on the dollar. The bank was also accused of misleading investors in Longshore 3, another CDO, by saying that assets had been acquired from affiliates at prices that were fair market when, actually, claims the regulator, 40 securities had been moved at prices that were above market and Wachovia moved assets at prices that were stale so it wouldn’t have to report the losses.

The SEC said that while it did not consider Wachovia to have acted improperly in the way it structured the CDOs, the bank violated investment protection rules by using stale prices, even as buyers were being told the prices were fair market value, and charging excessive markups in secret. The Commission found that the Zuni Indians and other investors suffered financial losses as a result. Last year, Wachovia agreed to pay $11 million to settle charges accusing it of violating federal securities laws in its sale of MBS leading up to the collapse of the housing market.

European Bank LBBW Sues Wells Fargo Over Alleged $1.5 Billion Securities Fraud, The Sacramento Bee, October 1, 2012

German bank sues Wells Fargo alleging $1.5 billion securities fraud, San Francisco Business Times, October 2, 2012

Wells Fargo Settles Case Originating At Wachovia, The New York Times, April 5, 2012

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REIT Retail Properties of America’s $8 Public Offering Results in Major Losses for Fund Investors, Institutional Investor Securities Blog, April 17, 2012

Texas Securities Fraud: Investor Sues Behringer Harvard REIT I, Stockbroker Fraud Blog, September 26, 2012

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Wells Fargo & Co. has agreed to settle for $148 million the civil claims and criminal charges accusing Wachovia Bank of taking part in a bid-rigging scam with other financial firms and overcharging local and state governments on their investments. The settlement resolves allegations that for eight years, Wachovia rigged at least 58 transactions involving proceeds from over $9 billion of municipal bonds. By agreeing to settle, Wells Fargo, which acquired Wachovia three years ago, is not denying or admitting to these allegations.

In its allegations against Wachovia, the SEC said the financial firm earned ill-gotten gains in the millions of dollars by using tips provided about rival bids, turning in bogus bids to give competitors an advantage, and working with some of them to rig auctions so it would benefit. The Justice Department said Wachovia’s illegal behavior corrupted the bidding system for investment contracts while preventing municipalities from getting to avail of a competitive process. However, because the financial firm admitted to the illegal conduct, cooperated with the investigation, took action to deal with anti-competitive behavior, the federal government decided not to prosecute.

Involved in investigating Wachovia were the SEC, attorneys general in more than two dozen states, and the US Justice Department. The federal agencies have been looking at how a number of Wall Street firms and local-government advisers worked together to rig competitive auctions in order to charge excessive fees to public agencies that bought the investments.

More than dozen banks have been named as alleged co-conspirators. Other financial firms that have settled similar claims over muni bond bid-rigging are Bank of America, Corp., UBS AG, and JPMorgan Chase & Co. With this latest settlement, the banks will have paid $673 million to settle the municipal bond-related allegations.

The charges against the financial firms involve investment contracts purchased by cities and state with proceeds from the municipal-bond market. At competitive auctions organized by financial advisers, these contracts should have gone to banks offering the highest return.

According to investigators, what instead ended up happening is that some of these advisers would direct business to a certain bidder in exchange for kickbacks. Meantime, other banks would purposely make bids they knew wouldn’t win to cover up the alleged conspiracy. Because governments usually have to invest bond proceeds in the short term until it is time to spend the cash on public projects, the bogus bidding practices adversely impacted what municipalities ended up paying for reinvestment products. The bid-rigging cost the US Treasury and other governments money.

Wells Fargo Pays $148 Million to Settle Wachovia Muni Bid-Rigging Charges, Bloomberg, December 8, 2011

Wells Settles Wachovia Bid-Rig Case, Wall Street Journal, December 9, 2011

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Bank of America’s Merrill Lynch Settles for $315 million Class Action Lawsuit Over Mortgage-Backed Securities, Institutional Investor Securities Blog, December 6, 2011

Former US Treasury Secretary Henry Paulson Told Hedge Funds About Fannie Mae and Freddie Mac Bailouts in Advance, Institutional Investor Securities Blog, November 30, 2011

$75K FINRA Arbitration Award Against Wells Fargo Advisors LLC For Defaming an Ex-Employee in Form U-5 is Confirmed by District Court, Stockbroker Fraud Blog, November 30, 2011

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For a payment of $11.2 million, Wells Fargo & Co. will settle US Securities and Exchange Commission allegations that Wachovia Capital Markets LLC misled investors and improperly sold two collateralized debt obligations in 2007 and 2006. Wachovia was bought by Wells Fargo in 2008.

Wells Fargo Securities now manages Wachovia. By agreeing to settle, the investment bank is not admitting to or denying the findings.

According to the SEC, Wachovia Capital Markets LLC, now called Wells Fargo Securities, violated securities law anti-fraud provisions when it sold the complex mortgage-backed securities to investors despite the red flags indicating that there was trouble brewing with the US housing market.

The SEC says that Wachovia charged excessive markups in the sale of part of a $1.5 billion CDO called Grand Avenue II. Unable to sell the CDOs $5.5 million equity portion in October 2006, it kept the shares on the trading desk while dropping their value to 52.7 cents on the dollar. Wachovia later sold the shares for 90 and 95 cents on the dollar to an individual investor and the Zuni Indian tribe. Both did not know that they had purchased the shares at a price that was 70% above their accounting value. The transaction went into default in 2008.

The SEC claims that in 2007, Wachovia Capital Markets misrepresented to investors in Longshore 3, a $1.3 billion CDO, that assets had been acquired from Wachovia affiliates on an “arms’-length basis” when actually, 40 residential mortgage-backed securities were transferred at $4.6 million over market prices. The SEC contends that Wachovia was trying to avoid sustaining losses by transferring the assets at “stale” prices.

Related Web Resources:
Wells to pay $11.2 M in case, Seeking Alpha, April 6, 2011

Wells Fargo-Wachovia settles CDO claim with SEC for $11 million, Housing Wire, April 5, 2011

CDO News, New York Times

Mortgage-Backed Securities,

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Goldman Sachs Sued by ACA Financial Guaranty Over Failed Abacus Investment for $120M, Institutional Investor Securities Blog, January 10, 2011

Houston Man Indicted in Alleged $17M Texas Securities Fraud, Stockbroker Fraud Blog, December 23, 2010

Goldman Sachs COO Says Investment Firm Shorted 1% of CDOs Mortgage Bonds But Didn’t Bet Against Clients, Stockbroker Fraud Blog, July 14, 2010

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