Wachovia Securities Background Information

Wachovia Securities is a subsidiary of Wachovia Corporation, a commercial bank holding company.  Through its securities subsidiaries it provides international securities brokerage services, estate planning, investment advisory, investment banking and debt and equity underwriting.  Prior to a pending takeover of AG Edwards, Wachovia Corporation operates159 offices in 16 states and 40 offices internationally, with total assets over $541.8 billion. Wachovia was founded in 1879, its headquarters are in Charlotte, NC.

“Wachovia” is pronounced wah-KO-vee-yah (not wah-CHO-vee-yah, or the word play "watch over you").  The origin of the name is the Latin form of the name of a German region, Wachau. When early German speaking settlers arrived in the area which is now Winston-Salem, NC, they named the land after the lush valley along the Danube River.

Wachovia Corporation survived as the name of the combined company when Wachovia was taken over by First Union Corporation in 2001.  At the time, both Wachovia and First Union had faced disruptions from prior mergers which led each to lower earnings.  Yet the merger came after a bitter battle with Atlanta-based SunTrust Bank, resulting in a high cost of four times “book” value being paid.

Wachovia Securities has been formed from the securities subsidiaries which were relatively recent additions to each of the two parent banks: First Union Securities was the amalgamation of a number of smaller securities firms, while Wachovia’s securities division came primarily from its purchase of the securities subsidiary of Prudential Insurance in 2001.

Prior to its purchase, Prudential Securities was itself beset with problems including a widely known scandal over limited partnerships it sold in the 1980's.  Sanctions and fines by the SEC and claims by investors soiled the reputation of parent Prudential Insurance and threatened the existence of Prudential Securities.  Surprisingly, it did survive and was later sold to Wachovia.

Prudential’s survival demonstrated to Wall Street that almost no securities scandal is unmanageable.  After Prudential, multiple scandals involving virtually all major firms on Wall Street have emerged but not prevented those firms from growing with record profits.  Millions in fines and hundreds of millions in claims are more than offset by billions in profits, including from the wrongful activities. In the first quarter of 2007, Wachovia reported $2.3 billion in earnings.

Shepherd Smith Edwards & Kantas LTD LLP Law Firm

Our law firm represents institutional and individual investors nationwide with significant losses in their portfolios, retirement plans or investment accounts.  Our attorneys and staff have more than 100 years of combined experience in the securities industry and in securities law. Several of our lawyers served for years as Vice President or Compliance Officer of brokerage firms.

Each lawyer and staff member of our firm is devoted to assisting investors to recover losses caused by unsuitability, over-concentration, fraud, misrepresentation, self-dealing, unauthorized trades or other wrongful acts, whether intentional or negligent.  We have handled over a thousand cases against hundreds of large and small investment firms, including claims against Wachovia Securities and firms it has acquired, including Prudential Securities, First Union Securities and AG Edwards.

Call us at (800)259-9010 or contact us through our Website to arrange a free confidential consultation with an attorney to discuss your experiences with an investment advisor or financial firm which resulted in losses.

Additional Information:

Wachovia Fined $2 Million for Wrap Fee Violations 

The NASD announced that it has fined Wachovia Securities LLC $2 million for failing to adequately supervise its fee-based (or “wrap” fee) brokerage business between 2001 through 2004.    

Wachovia was also ordered to identify and pay restitution to approximately 1,300 customers who were overcharged, including those who paid such account fees on Class A mutual fund share holdings for which they had already paid a sales load.

The firm also is required to retain an outside consultant to review its process of identifying and paying restitution to customers.

Wachovia Unit Loses 17.8 Million in Arbitration

A National Association of Securities Dealers arbitration panel ordered a Wachovia securities subsidiary to pay $17.8 million in damages to for claims, including that it lied to a client about accounts.

An investor who filed a claim against Corporate Securities Group (a firm bought by First Union which then became Wachovia Securities Financial Network) for misrepresentations, breach of fiduciary duty and other claims involving violations of securities regulations.

According to the NASD Arbitration Award, an branch office manger led the investor to believe he was dealing directly with Bear Stearns Securities to convince him to open a $12.5 million brokerage account at that firm. The manager/broker was actually employed by Corporate Securities, not Bear Stearns. The ruling found the broker also forged trading authorization documents and engaged in heavy trading in the account, generating high commissions, and also transferred funds out of the account to third parties without authorization.

The Wachovia unit, Bear Stearns and the manager/broker were each ordered to pay a portion of the total awarded.  

Did Wachovia Assist Thieves to Defraud Seniors?  

A New York Times article dated May of 2007 entitled "Corporate Profits, From Data Sold to Thieves" chides firms that sell lists indiscriminately and Wachovia and other banks for facilitating identity theft. 

One large firm advertises lists such as “Elderly Opportunity Seekers” and “Suffering Seniors” (4.7 million people with cancer or Alzheimer’s disease). Thieves who purchase such lists used stolen identities to remove funds from accounts through Wachovia and other banks. The article indicates that Wachovia was negligent in screening or taking action against companies connected to identity theft.

The article states: "In all, Wachovia accepted $142 million of unsigned checks from companies that made unauthorized withdrawals from thousands of accounts, federal prosecutors say. Wachovia collected millions of dollars in fees from those companies, even as it failed to act on warnings, according to records."

A lawsuit filed last year by U.S. Attorney Patrick L. Meehan indicates Wachovia received thousands of warnings it was processing fraudulent checks, but ignored these. According to the suit, over half the unsigned checks Wachovia accepted and forwarded to other banks were ultimately refused by those financial institutions. “When between 50 and 60 percent of transactions are returned, that tells you at gut level that something’s not right,” said Meehan. The suit did not name Wachovia as a defendant but at least one victim has filed a lawsuit against the bank.

When confronted with similar evidence other banks have closed questionable accounts, but Wachovia continued accepting unsigned checks until the government filed suit in 2006. The article adds that some financial firms, including Wachovia, do make refunds after victims complain.

Wachovia Buys AG Edwards - 2nd Only to Merrill

Wachovia Corporation agreed to acquire A.G. Edwards Corporation for $6.8 billion in stock. This will vault Wachovia into the second-largest U.S. retail brokerage, with $1.1 trillion in client assets, behind only Merrill Lynch.

This transaction is the largest of recent takeovers of regional brokerage firms, which are having difficulty fending off efforts to hire their representatives.  Meanwhile, falling commissions in the industry has caused disruptions in sales staffs.

For years there has been speculation over whether A.G. Edwards, a mostly employee owned firm, could maintain its independence and raises new speculation about other large regional brokerages such as Jeffreys & Company and Raymond James.

The deal will cause Wachovia to surpass Citigroup's Smith Barney brokerage unit in number of representatives as well as Ameriprise Financial, which claimed to be third. Wachovia said the combined company will have 15,000 financial advisers and an increased presence in 48 of the 50 largest metropolitan areas.

Wachovia has built its brokerage business relatively quickly, largely through the acquisition of Prudential Securities in 2003, and several smaller firms. Prudential Financial, Inc. continues to own 38% of Wachovia.

By purchasing A. G. Edwards Wachovia will not only have a larger base to market financial products but will nearly double its number of brokerage offices to 1,512. The acquisition of A. G. Edwards will also increase Wachovia's focus on small investors and give it wider geographic coverage, particularly in the Midwest.

A question yet unanswered is whether, with disparities in commission pay, Wachovia can retain the A. G. Edwards Brokers as well as its own. Merrill Lynch retained a much smaller number of brokers than expected it bought Advest in December 2005. UBSAG saw an exodus of brokers from Piper Jaffray’s advisory business, which the Swiss bank bought last year.

Wachovia and its rivals are eager to take aim at baby boomers, tens of millions of whom could take control of their retirement assets in the next decade. Wachovia also advertises its services to women and young people.

More Information About Wachovia


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