Wells Fargo Settles With SEC on Wachovia; Zuni Tribe, Investors to Get $7.4 Million

The SEC’s order found that, with the first CDO — Grand Avenue II, Wachovia marked down $5.5 million of equity to 52.7 cents on the dollar after the deal closed and it was unable to find a buyer, according to the SEC. Months later, the Zunis and the individual investor paid 90 and 95 cents on the dollar. Unbeknownst to them, these prices were over 70% higher than the price at which the equity had been marked for accounting purposes, the SEC says.

With the second CDO – Longshore3, Wachovia misrepresented that it acquired assets from affiliates “on an arm’s-length basis” and “at fair market prices” when, in fact, 40 residential mortgage-backed securities were transferred from an affiliate at above-market prices. Wachovia Capital Markets transferred these assets at stale prices in order to avoid losses on its own books.

In agreeing to pay $6.75 million in disgorgement and $4.45 million in penalties – $7.4 million of which will be returned to the investors through a Fair Fund — Wells Fargo Securities did not admit or deny the findings.

“The settlement relates to actions taken by Wachovia in 2007 in the early days of the credit crisis,” Wells Fargo said in a statement on Wednesday. “The issues presented here were complex, and Wells Fargo is pleased to have resolved this matter with the SEC.”