- The Washington Times - Friday, July 18, 2008

CHARLOTTE, N.C. | Securities regulators from several U.S. states, investigating Wachovia Securities‘ auction rate securities sales practices, went to the company’s St. Louis headquarters Thursday and requested its documents and records.

Missouri officials said they conducted a “special inspection” at Wachovia, part of a broad probe into questionable practices involving auction rate securities.

Missouri Secretary of State Robin Carnahan’s office said the visit to Wachovia Securities, the former A.G. Edwards, concerned the collapse of the $330 billion auction rate securities market. Wachovia Securities is part of the Charlotte bank Wachovia Corp.

“Hundreds of Missouri investors have called my office because of inability to access their money,” Mrs. Carnahan said, adding that she aims to take actions “to make these investors whole.”

Wachovia spokeswoman Christy Phillips-Brown said, “Most securities firms, including Wachovia, are responding to inquiries from regulators about the auction rate securities industry. The discussions that are occurring today are a part of this ongoing process.”

The Securities and Exchange Commission declined to comment.

Auction rate securities had been seen by many as a safe investment. They were used, among other things, to fund municipal projects and agencies. They were promoted by brokers as liquid investments because customers normally could get out of them quickly.

The interest rates on such securities were reset at regular auctions, but the market fell apart during the credit crisis when investment banks stopped buying because the paper was seen as too risky. The market’s failure left many issuers including local governments unable to fund projects or daily operations unless they borrowed at much higher rates. That in turn left investors unable to access their cash.

The state’s action followed more than 70 formal complaints filed with the Missouri Securities Division over the past four months, representing more than $40 million of frozen investments. The Securities Division began an investigation in April, requesting documents, e-mails, transcripts and other records from Wachovia Securities and other banks.

Wachovia Securities has not fully complied with these requests, prompting Thursday’s on-site inspection, Missouri officials said.

The events had no apparent effect on Wachovia shares, which joined a general stock market rally and rose $2.90, or 27.5 percent, to close at $13.44 on the New York Stock Exchange.

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