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Wachovia Raided by Regulators

A team of investigators inspected Wachovia Corp.’s securities division Thursday as part of an ongoing investigation into the company’s sales of auction-rate securities. Regulators from more than five states searched the St. Louis headquarters to uncover information about sales practices, internal evaluations of the auction-rate securities market and marketing strategies. Wachovia executives and agents were issued over a dozen subpoenas. 

Wachovia was warned Wednesday about the raid because the company had not “fully complied with the Missouri probe,” Missouri Secretary of State Robin Carnahan said.  This search is another strike for Wachovia, which ousted CEO Kennedy Thompson in June after a $708 million first-quarter loss.  

It looks like the bank will encounter even more setbacks.  According to a June 17, article, Wachovia is expected to record a loss of at least $2.6 billion for the second quarter. 

In May, Wachovia reported it had received inquiries and subpoenas from the SEC and state regulators concerning underwriting and sales of auction rate securities, and that it expected “further review and inquiry.” 

Wachovia clients have filed more than 70 formal complaints to the state since February, totaling over $40 million in frozen assets. Hundreds of Missouri investors have called the Secretary of State’s office because of inability to access money needed to run their business make medical payments or pay tuition.  

Over $218 billion of auction-rate bonds sold by student-loan providers, municipalities and closed-end mutual funds remain frozen since firms quit roles of last minute buyers in February.

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