A team of 10 securities regulators from Missouri, Illinois, Massachusetts, New Jersey, Pennsylvania and other states entered Wachovia Securities' headquarters in St. Louis. The investigation is being spearheaded by Missouri Secretary of State Robin Carnahan, who is seeking documents and records regarding Wachovia's sales practices, marketing strategies and internal evaluations of the auction-rate securities market.
Carnahan has served subpoenas to over a dozen Wachovia Securities agents and executives to gather more information as well. The Missouri Securities Division initially launched an investigation into several banks in April, but says Wachovia has "not fully complied" with its requests for documents, emails, transcripts and other records.
Wachovia spokeswoman Christy Phillips-Brown responded by saying that "many securities firms, including Wachovia, are responding to inquiries from regulators about the auction-rate securities industry. The discussions that are occurring today are part of this ongoing process." Auction-rate securities are long-term debt instruments that are typically bought and sold at weekly or monthly auctions.
The interest rate changes with bids. The investments were once seen as similar to money-market accounts in terms of liquidity -- investors believed they could access the cash at any time, since the securities frequently changed hands. In February, however, as the credit markets dried up and liquidity froze, investors became unable to cash in on their auction-rate securities. Thousands of auctions failed and banks refused to honor the investments for holders who wanted to take their money and run.
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