DALLAS - Wachovia Securities must repurchase all of the auction-rate securities sold in Texas by June and pay a $3.98 million fine under a final settlement order with state Securities Commissioner Denise Voigt Crawford.
Wachovia, now part of Wells Fargo, had reached a tentative settlement with Texas in August as part of a national deal that requires the securities dealer to repay investors $8.5 billion and pay a $50 million penalty.
The amount of ARS sold in Texas is not known, said securities commissioner spokesman Robert Elder.
Wachovia "fostered the misconception" that auction-rate securities were cash-like instruments that could be accessed at almost any time, according to the commissioner's order. In fact, Crawford said, ARS are long-term bonds subject to a complex auction process that, upon failure, can result in accounts being frozen and lower interest rates on the bonds.
"Although Wachovia Securities sold ARS as a conservative, safe, and liquid investment to its investors until February 2008, Wachovia had information that several auctions had failed in August 2007 and early 2008, before the mass failures in February 2008," the order says.
In its findings, the commissioner reported that often the sales people did not understand the securities they were offering and had not been properly trained by Wachovia, which in itself is a violation of Texas securities law.
"During the course of investigations, on-the-record statements taken from Wachovia Securities' registered agents demonstrated that these agents lacked a basic understanding of the functionality of the ARS products and the auction-rate market," according to documents filed in the case.
After receiving a flood of complaints, 12 states, including Texas, formed a task force in April 2008 to investigate whether the nation's prominent Wall Street firms had systematically misled investors when placing them in auction-rate securities.
Settlements with other large Wall Street securities dealers have also been announced.
