According to articles by analysts Liz Skinner (Investment News), Jean Eaglesham and Dan Fitzpatrick (Wall Street Journal), Wells Fargo & Co. has consented to dish out a whopping $11.2 million to investors. What’s the reasoning behind this generous payout? The financial giant is hoping to lay rest to charges by the Securities and Exchange Commission (SEC) that its Wachovia Capital Markets LLC affiliate engaged in investment fraud by price gouging customers.
According to SEC charges, Wachovia engaged in broker fraud when they fleeced investors by grossly overcharging them for collateralized debt obligations (CDOs). CDOs, which are mortgage-backed securities, were sold by Wachovia at a rate 70 percent higher than their own estimate of their mark-to-market value. Although several individuals were the victims of this flagrant swindle, the primary injured party was the Zuni Tribe of American Indians.
And Wells Fargo may not be the only culprit on Wall Street that dealt in overpriced CDOs. Wall Street investment firms have sold $1 trillion worth of CDOs. Were those sales examples of investment fraud, too? The SEC is looking into it by subpoenaing records from JP Morgan, UBS, Deutsch Bank and Citigroup—and arranging preemptive settlement discussions with suspect firms.
Recently, firms on Wall Street have been hard hit by SEC actions and lawsuits filed by securities fraud attorneys—and for good reason. Their promotion and sale of trillions of dollars in complex, illiquid securities backed by risky subprime mortgages was a major precipitating factor in the recent banking crisis.
At Carlson Law, we believe that these SEC investigations foreshadow future arbitration awards against firms that sold CDOs. For further questions and information, contact our securities fraud attorney in San Diego today.