BALTIMORE (July 12, 2007) - Maryland Attorney General Douglas F. Gansler yesterday announced that under the terms of a settlement between the Securities Commissioner and Wachovia Capital Markets, LLC of Charlotte, North Carolina, Wachovia will pay Maryland $326,480 in civil monetary penalties for failing to supervise its employees in connection with potential conflicts of interest, and $26,934 in penalties for failing to preserve books, records, and e-mail. An additional $48,972 will be available for investor education projects designated by the Maryland Securities Commissioner.
The settlement results from allegations of potential conflicts of interest between Wachovia Capital Markets’ research analysts and investment bankers. The settlement comes after a lengthy investigation of the firm led by a multistate task force of state securities regulators including Maryland. Wachovia Capital Markets operates Wachovia Corporation’s institutional brokerage and capital markets businesses. The investigation of Wachovia Capital Markets was part of a comprehensive regulatory effort to reform the relationship between investment banking and research and to manage appropriately conflicts of interest.
“This agreement is a major step in our ongoing efforts to ensure that investors are treated fairly in the securities marketplace,” said Attorney General Gansler. “Wachovia’s reformed businesses practices will provide stronger protections for investors and will help prevent conflicts of interests that harm investors.”
The multistate settlement is the last in a series of settlements related to the April 2003 global settlement that 12 other investment banks reached with state, federal and industry regulators. In addition to the monetary penalties, Wachovia has adopted policies and procedures designed to ensure compliance with all legal and regulatory requirements regarding analyst independence, and has upgraded its e-mail retention technology.
The settlement, the allegations of which were neither admitted nor denied by Wachovia Capital Markets, includes the following charges:
• State investigators determined that Wachovia Capital Markets failed to supervise its employees in connection with potential conflicts of interest between equity research and investment banking as evidenced by research analysts’ participation in certain presentations with potential investment banking clients. In addition, research analysts’ evaluations sought information regarding their interaction with investment banking and regarding the investment banking activity in their sector.
• Wachovia did not keep certain electronic communications as required by state securities laws. Wachovia Capital Markets’ e-mail system and procedures were inadequate to ensure all electronic mail communications were retained and readily accessible. Wachovia Capital Markets also failed to maintain a system that allowed it to locate and retrieve back-up tapes for its e-mail system.
Attorney General Gansler reminded investors that they can contact the Securities Division of his office at 410-576-6360 if they have questions concerning the status of investment promoters or the securities in which they plan to invest. Gansler cautions potential investors to thoroughly check out any investment opportunity by contacting the Securities Division regarding securities broker-dealers, agents, investment advisors, investment advisor representatives, financial planners, the registration status of securities, or to report suspected fraud.
Source: Md. Attorney General Gansler