The Securities and Exchange Commission and several state regulators have sent subpoenas and inquiries Wachovia Securities, LLC and the unit’s affiliated firms asking for information about the underwriting, sale, and auctions of municipal auction-rate securities and preferred securities, according to Wachovia Corp.
Since February, the auctions that set the rates for most ARS issues have failed, resulting in a lack of liquidity for the securities, Wachovia stated in a 10-Q it filed on Monday. The company said it expects further review and inquiry by regulators and will cooperate fully.
Further, Wachovia and Wachovia Securities have been named in a civil suit, Judy M. Waldman Trustee v. Wachovia Corporation and Wachovia Securities LLC filed March 19 in U.S. District Court for the Southern District of New York. Charging the companies with misrepresenting the quality, risk, and characteristics of ARS, the suit seeks class-action status for customers who bought and still hold the securities. The company said it intends to defend itself vigorously.
New York’s attorney general and securities regulators in a number of states are conducting a broad investigation of ARS and the role played by Wall Street firms in promoting and marketing them to investors>The Wall Street Journalreported.
Wachovia is one among a number of large financial institutions that recently took large write-offs, slashed their dividends and raised new capital.
Last week the company announced that Ken Thompson will no longer serve as chairman, but will remain president and chief executive officer and continue to serve on the board. Board member Lanty Smith will serve as chairman, making Wachovia the latest company to separate the chairman and CEO roles. At last month’s annual meeting, shareholders repeatedly called for Thompson’s resignation altogether.
On Monday, Thompson told an investor conference that Wachovia is taking steps to fix a recent spate of regulatory and other issues, including hiring a third-party firm to analyze its financial controls and risk management practices, according to the Charlotte Observer.
Wachovia shouldn’t be considered a “company in crisis,” he said. Thompson also said he plans to cut one-third of the bank’s fixed-income employees and 10 percent of its corporate and investment bank support staff, according to Reuters.