(Wilmington, DE) Attorney General Carl Danberg announced today that under the terms of a settlement between the Securities Division of the Attorney General’s office and Wachovia Capital Markets, LLC, the Delaware Investor Protection Fund will receive $246,500 in fines resulting from a multi-state investigation of securities analyst research practices. The investigation focused on allegations of conflicts of interest at Wachovia, and other securities firms, occurring when research analysts recommended stocks as a result of improper influence from their investment banking colleagues.
This settlement agreement was announced following a 28-month investigation by a multi-state task force of state securities regulators. Pursuant to the terms of the agreement, all 50 settling agencies will receive a total settlement amount of $25 million dollars.
The allegations in the settlement, which Wachovia neither admits nor denies, include the following:
‘ State investigators determined that Wachovia Capital Markets failed to supervise its employees in connection with potential conflicts of interest between equity research and investment banking as evidenced by research analysts participation in certain presentations with potential investment banking clients. In addition, research analysts evaluations sought information regarding their interaction with investment banking and regarding the investment banking activity in their sector. Moreover, on occasion, Wachovia Capital Markets considered whether companies were potential clients in determining to provide research coverage on those companies.
‘ Wachovia did not keep certain electronic communications as required by state securities laws. Wachovia Capital Markets e-mail system and procedures were inadequate in ensuring that all electronic mail communications were retained and readily accessible. As a result, 20 percent of the e-mail folders requested in November 2002 could not be produced and 42 percent of the e-mail folders requested in January 2003 were not produced promptly. Wachovia Capital Markets also failed to maintain a system that allowed it to locate and retrieve back-up tapes for its e-mail system.
The multi-state settlement is related to the April 2003 Global Settlement that 12 other investment banks have reached with the state, federal and industry regulators. Under the terms of the settlement, Wachovia Capital Markets will pay a total of $25 million, including: $20 million in penalties for failing to supervise its employees in connection with potential conflicts of interest between equity research and investment banking; $1.65 million in penalties for failing to preserve required books and records; $3 million to be used for investor education, as designated by the Board of Directors of the North American Securities Administrators Association, Inc. (NASAA); and $350,000 for costs associated with the investigation, which will be paid to NASAA. Delaware’s portion of the settlement, $246,500, will be directed to the Delaware Investor Protection Fund which, by statute, is designated for training, investor education projects and prosecution of securities fraud cases.
Attorney General Carl Danberg said, “This settlement is part of an ongoing effort by state regulators to restore investor confidence in the integrity of our markets and the persons who are employed in those markets. Investors are entitled to full disclosure and fair dealing when they work with registered investment professionals.”
Delaware Securities Commissioner, James B. Ropp, stated that, “this and the other security analyst cases furthers the principle that the average investor is entitled to accurate research untainted by undisclosed conflicts of interest.