Wachovia Securities reached a settlement with its former head of CDO research, Arturo Cifuentes, who filed a Sarbanes-Oxley complaint against the bank arguing that he was improperly dismissed. The settlement, however, may not mean the end of the Securities and Exchange Commission's ongoing investigation into the matter.
Cifuentes contends Wachovia fired him last April after he had refused to sign an analyst certification on a research report stating that his compensation was not tied to his recommendations. He subsequently filed a whistleblower complaint with the Department of Labor's Occupational Safety and Health Administration (OSHA). Under Sarbanes-Oxley, OSHA has jurisdiction over whistleblower complaints in the securities industry.
As a part of the settlement, Cifuentes agreed to withdraw his complaint to OSHA. But the SEC, which is automatically copied on OSHA complaints, could move forward with its own probe. Regulators in the SEC's Atlanta office began interviewing Wachovia employees about the alleged incidents in late 2005.
Cifuentes' attorney, Jenice Malecki of Malecki Law in New York, confirmed that Cifuentes is not precluded from testifying in an SEC investigation, and said her client would comply with any SEC requests. The SEC declined to comment on the situation, though a spokesperson noted that "in general, [the settlement] would not affect an investigation." It is believed that the settlement is monetary in nature, as the complaint with OSHA was based on income lost due to an unjust firing. The settlement is conditional upon a review by the Department of Labor, said a person familiar with whistleblower procedures.
In the OSHA complaint, Cifuentes said he protested repeatedly to his superiors about pressure from the bank's investment bankers to change or tailor his group's CDO research. Under Sarbanes-Oxley, influence and pressure by investment bankers on research analysts is strictly prohibited. Cifuentes maintains that when senior management refused to step in, he declined to certify his group's research reports and was fired.
The whistleblower complaint contained several alleged infractions of the Chinese Wall that was set in place by Sarbox and contained numerous e-mail exchanges between Brian Lancaster, the head of Wachovia's research group, various investment bankers tied to structured finance at the bank, and Cifuentes, who said that pressure from the investment bankers violated polices relating to independent research.
Yu-Ming Wang, Wachovia's head of structured products, is named repeatedly in the complaint for allegedly pressuring the CDO group to produce favorable research in conjunction with CDOs the firm was marketing. In one exchange, it is alleged senior bankers, including Russ Andrews and Bo Weatherly, who reported to Wang, pressured Cifuentes to write a favorable article on CDO equity in conjunction with their marketing of the AXA CDO Equity fund in February 2004. And a Feb. 3, 2005 e-mail, allegedly from banker Anthony Sciacca to Cifuentes, chastised Cifuentes for a Jan. 31, 2005 report on the performance of CDO managers. The e-mail claimed the research piece contributed to the cancellation of a meeting with Pacific Investment Management Co. (Pimco) regarding a new collateralized loan obligation.
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