Wells Fargo to pony up $11.2M for allegedly overcharging Zunis, other investors

Home loan giant Wells Fargo & Co. has agreed to pay $11.2 million to settle federal securities charges involving mortgage-based investments that Wachovia Capital Markets LLC sold to the Zuni American Indian tribe and other investors. According to a complaint filed by the Securities and Exchange Commission, Wachovia sold the tribe and an individual investor collateralized debt obligations that were tied to the health of residential mortgage-backed securities. The SEC alleged that Wachovia sold the tribe the CDOs at prices that were 70% higher than its own estimate of the mark-to-market value of the securities. The commission also claimed that Wachovia did not inform investors in another CDO that it had transferred 40 residential mortgage-backed securities from an affiliate at above-market prices to avoid losses on its own books, the commission said. “Wachovia caused significant losses to the Zuni Indians and other investors by violating basic investor protection rules — don't charge secret excessive markups and don't use stale prices when telling buyers that assets are priced at fair market value,” Robert Khuzami, director of the SEC's Division of Enforcement, said in a statement. Wells Fargo, which bought Wachovia in 2008, agreed to pay restitution of $6.75 million and a $4.45 million penalty to settle the charges. Of the total, $7.4 million will be returned to investors who were harmed by the misconduct, the SEC said. The firm settled the matter without admitting or denying the allegations. “The settlement relates to actions taken by Wachovia in 2007 in the early days of the credit crisis,” said Wells Fargo spokeswoman Mary Eshet. “The issues presented here were complex and Wells Fargo is pleased to have resolved this matter with the SEC.”