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Regulators Raid Wachovia's Hub

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The Associated Press

Published: July 18, 2008

CHARLOTTE, N.C. - Securities regulators from several U.S. states on Thursday raided the St. Louis headquarters of Wachovia Securities, seeking documents and records on the company's sales practices.

The move is part of a broad investigation into questionable practices involving auction rate securities, Missouri officials said.
Missouri Secretary of State Robin Carnahan's office said the "special inspection" at the Wachovia Securities, the former A.G. Edwards, concerned the collapse of the $330 billion auction rate securities market. Wachovia Securities is part of the Charlotte-based bank Wachovia Corp.

"Hundreds of Missouri investors have called my office because of inability to access their money," Carnahan said in a statement. She added that she aims to take actions to "to make these investors whole."

Wachovia spokeswoman Christy Phillips-Brown said, "Most securities firms, including Wachovia, are responding to inquiries from regulators about the auction rate securities industry. The discussions that are occurring today are a part of this ongoing process."

The Securities and Exchange Commission declined to comment.
Auction rate securities were used, among other things, to fund municipal projects and agencies. The interest rates on such securities were reset at regular auctions, but the market fell apart during the credit crisis when investment banks stopped buying because the paper was seen as too risky. Many issuers were forced to turn elsewhere to borrow - and often had to pay much higher rates.

The state's action, which also sought information on internal evaluations and marketing strategies, followed more than 70 formal complaints filed with the Missouri Securities Division during the past four months, representing more than $40 million of frozen investments. In April, the Securities Division launched an investigation, requesting documents, e-mails, transcripts and other records from Wachovia Securities and other banks.
Wachovia Securities has not fully complied with these requests, prompting Thursday's onsite inspection, Missouri officials said.

Except for an encampment of news trucks, nothing appeared out of the ordinary Thursday at Wachovia Securities' sprawling campus west of downtown St. Louis. Employees who ducked out for a cigarette break or to grab lunch declined comment, with many pleading ignorance of the investigation.

Wachovia is the nation's fourth-largest bank.

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