Wachovia Securities Fraud
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Wachovia SecuritiesBrief description of Wachovia The Wachovia Corporation, based in Charlotte, NC, is the nation’s fourth largest bank. In the latest of several recent mergers, Wachovia was bought in 2001 by First Union Corporation, which then adopted the name. Wachovia Securities, the company’s investment division, is the country’s fifth-largest retail brokerage. Despite a culture of success that has been built at the institution, Wachovia Securities has unfortunately experienced a number of black eyes in recent years. These have included charges of misinforming investors, document theft, and assisting with tax evasion. Why is Wachovia accused of fraud? Wachovia has faced several suits in recent years for various alleged fraudulent activities. These include suits against First Union, as Wachovia was formerly known, and other companies with which it has merged. One case involved a Wachovia broker who came to the company from Morgan Stanley, allegedly bringing with him files on his former employer’s clients. The financial adviser, Boyd Nicely II, is accused of using the documents to direct old clientele to his new company. Wachovia is also facing charges that it received $200,000 for helping to direct banking clients to firms that would help set up tax shelters. North Carolina business mogul Peter Loftin claims that Wachovia, accounting firm KPMG, and QA Investments all collaborated to provide him with what he would later find out was an illegal tax-sheltering scheme. Loftin now faces the tax bill and seeks compensation from the three companies. A company called East West filed a suit against Wachovia for breach of contract. East West alleged that, in 2000, Wachovia – then known as First Union Securities – failed to provide research coverage that East West had bought by sending the firm business. This pointed to possible conflicts of interest at Wachovia that mirrored those of other Wall Street firms. East West was seeking $2 million in damages. Finally, Wachovia and companies with which it has merged are believed to have misled investors in numerous cases. In one case, investor L.R. Castelein claims that Corporate Securities (now part of Wachovia) told him they were creating an account for him with Bear Stearns. Mr. Castelein says that he later found out that Corporate Securities had opened the account themselves and had engaged in unauthorized, highly active trading with the funds. In another case, investors claim that First Union (also now part of Wachovia) prompted them to join an investment program that would garner the company significant benefits of which the investors were unaware. What is the current status? Wachovia initially intended to fight the East West suit, but it was settled before it went to trial. Industry experts believe that the firm wanted to prevent East West evidence from being added to the public record. The NASD ordered Wachovia to pay $17.8 million to Mr. Castelein to settle his charges. |