The Securities and Exchange Commission is preparing to bring civil charges against Wachovia Corp., the once-troubled bank now owned by Wells Fargo & Co., for allegedly overpricing mortgage-bond deals, according to people familiar with the matter.
The agency has focused on the amounts Wachovia charged investors for collateralized debt obligations, a type of security created by packaging mortgages, according to people familiar with the matter. SEC officials believe the Charlotte, N.C., bank applied excessive markups that didn't reflect the diminishing value of the underlying loans, according to people familiar with the matter.
Wells Fargo, which assumed Wachovia's liabilities when it purchased the bank for $19.36 billion in 2008, declined to comment. John Nester, a spokesman for the SEC, also declined to comment.
The Wachovia inquiry is part of a broader probe by the SEC into Wall Street's sales of about $1 trillion worth of CDOs. Banks' appetite for the lucrative deals fueled the demand for the risky subprime mortgages underlying many of the bonds. But the housing collapse dragged down the value of CDOs, spreading losses to investors around the world.
As part of its broad probe, the SEC, which has stepped up efforts to hold Wall Street accountable for some of the losses during the financial crisis, has issued subpoenas for documents and interviewed officials from nearly every bank or securities firm that was a major player in creating, selling or trading CDOs. The agency is in discussions with firms and could announce charges and settlements concurrently, said one person familiar with the matter. Banks that received SEC subpoenas include Citigroup Inc., Deutsche Bank AG, J.P. Morgan Chase & Co., Morgan Stanley and UBS AG.
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