Wachovia agrees to buy back securities

ST. LOUIS - The "nightmare" is over for thousands of investors whose money was tied up in auction-rate securities purchased through Wachovia Corp., Missouri Secretary of State Robin Carnahan said yesterday in announcing an $8.5 billion settlement with the company.

Wachovia, along with state and federal regulators, announced a settlement that calls for the Charlotte, N.C.-based bank to buy back $8.5 billion in auction-rate securities. Carnahan's office was the lead negotiator with Wachovia.

The company also agreed to pay $50 million in fines to be distributed among all 50 states.

Carnahan said that since the collapse of the auction-rate securities market in February, investors needing to access their money for retirement, medical bills and other debts have been unable to do so, even though Wachovia brokers peddled the securities as "cash equivalents, like a money market."

"This nightmare is finished so they can get on with their lives," Carnahan said.

Wachovia is the fifth bank to agree to repurchase the troubled securities over the last two weeks, following Citigroup Inc., UBS AG, JPMorgan Chase & Co., and Morgan Stanley.

Even before agreeing to pay billions to buy back auction-rate securities, Wachovia was a key player in providing letters of credit that allowed borrowers, such as the School District of Philadelphia, to refinance into a different form of debt.

Neither Missouri officials nor Wachovia had information on how much of the money Wachovia is paying will come to New Jersey and Pennsylvania.

Auction-rate securities are investments that resembled corporate debt, but their interest rates were reset at regular auctions. The market for the securities collapsed in February amid deterioration in the broader credit markets.

In July, securities regulators from Missouri and several other states went to Wachovia's St. Louis offices and requested documents and records related to auction-rate securities. Wachovia uses St. Louis as headquarters for its securities division.

The investigation was civil only. Carnahan would not speculate on the possibility of criminal charges.

The settlement involves more than 40,000 investors nationwide. Carnahan wasn't certain how many Missourians were impacted but said her office had received hundreds of calls from Wachovia customers, and 70 filed formal complaints.

Carnahan said the $5.7 billion in investments held by individuals, charities and small businesses will be returned by Nov. 28. The rest, held by larger firms, will be returned by June 30, she said.

Dan Gregus, assistant regulatory director for the Securities and Exchange Commission office in Chicago, declined to speculate on additional fines.

"Right now, our primary interest is getting money back to investors as quickly as possible," he said.

Wachovia admitted no wrongdoing in agreeing to the settlement. Robert K. Steel, its president and chief executive officer, said "unprecedented" market conditions created difficulties for the company's clients, particularly those holding auction-rate securities.