Yesterday Texas State Securities Commissioner Denise Voight Crawford signed a final consent order that requires Wachovia Securities to pay close to $4 million. The firm is registered as a securities dealer in the State of Texas.
The fine is for misleading investors about the safety of the auction rate securities (ARS) market. Wachovia is also told by the said order to complete the repurchase of the securities by June 30.
According to published reports, the commissioners order stated that Wachovia Securities created the misconception that the ARS were cash-like instruments that could be accessed at almost any time.
But, ARS are actually long-term bonds that are subject to a complex auction process that, upon failure, could ultimately result in accounts being frozen and interest rate on the bonds lowering.
It added that even though the securities firm sold the ARS as a conservative, safe, and liquid investment to its buyers in February 2008, which was when the market for these securities collapsed, Wachovia had knowledge that several auctions had failed in August 2007 and early 2008.
In other words, the firm had this information before the mass ARS failure happened.The Texas State Securities Boards order is the final action in the states ARS case against Wachovia. This case was settled in August 2008.