Zuni Pueblo Benefits from Wells Fargo $11M Settlement
As the mortgage market began to collapse in early 2007, Wachovia Capital Markets, a subsidiary of Wells Fargo, sold mortgage-backed securities and derivatives at 90 to 95 cents on the dollar to the Zuni Pueblo located in western New Mexico and Apache County, Arizona, reported The New York Times. When the deal defaulted the following year, the tribe and other investors lost millions.
The Zuni tribe bought the Grand Avenue securities at an inflated price through a Wachovia broker in El Paso, Texas, the SEC said. The excessive markups were made without the tribe's knowledge. "Unbeknownst to them, these prices were over 70 percent higher than the price at which the equity had been marked for accounting purposes," stated the SEC press release.
On April 5, the U.S. Securities and Exchange Commission (SEC) announced its approval of an $11 million settlement for the securities fraud complaint related to the Grand Avenue II deal and a second derivatives transaction, reported the Times. The amount of money the tribe will receive was not disclosed.
"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, the director of the SEC Division of Enforcement, said in a press release.
Wells Fargo bought the troubled bank Wachovia in 2008, and Wells Fargo Securities agreed to pay a disgorgement of $6.75 million and a civil penalty of $4.45 million, the SEC said. “The settlement relates to actions taken by Wachovia in 2007 in the early days of the credit crisis. The issues presented here were complex, and Wells Fargo is pleased to have resolved this matter with the SEC," Wells Fargo said in a statement, reported the Times.
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