Wachovia to Be Charged in Mortgage CDO Scandal

SEC says bank, now owned by Wells Fargo, overpriced CDOs
By Kevin Spak,  Newser Staff
Posted Apr 4, 2011 9:07 AM CDT
Wachovia to Be Charged in Mortgage CDO Scandal
A Wachovia sign hangs on a branch bank October 22, 2008 in New York. Wachovia today reported a record quarterly loss of nearly $24 billion.   (Getty Images)

The SEC is getting ready to bring civil charges against Wachovia for allegedly jacking up prices on its CDOs, even as the loans underlying them fell in value, sources tell the Wall Street Journal. The charges come out of a larger SEC probe into Wall Street’s shady CDO practices, which were a major contributor to the financial crisis. CDOs are securities created by packing together a bunch of mortgages—including, often, subprime ones.

According to an SEC source, Wachovia slapped big markups on its CDOs regardless of the value of those mortgages. Former Wachovia controller Robert Kraus also reportedly told SEC investigators that the bank hid its losses while selling its CDOs, and that it failed to take proper write-downs when its properties fell in value, but those allegations aren’t included in the “imminent” charges. Wachovia is now owned by Wells Fargo, which would have to pay any fines. (Read more Securities and Exchange Commission stories.)

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