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Administration April 2, 2006
Probes Launched Into Alleged Wachovia Trading Infractions
February 16, 2005 (PLANSPONSOR.com) - Wachovia
Securities and the NASD have opened investigations into one
of the brokerage's Westlake Village, California offices over
possible stock trading abuses.
Reported by Kip McDaniel
According to the Los Angeles Times, NASD has launched an investigation into the possibility that traders had opened fictitious accounts to reap arbitrage profits off company stock. Wachovia announced that it was looking into the situation as well.
An anonymous letter sent to Wachovia warning the company that numerous traders at the office under investigation had opened fake accounts to take advantage of a company stock purchase plan in which shares are directly sold to investors at discounts of up to 5%, according to the Times. The traders would allegedly buy the shares at the discount, and through the accounts, turn around and sell them at market value, profiting from the spread between the two prices.
Such accounts may violate regulations regarding “rules of fair practice”, the Times suggests. The creation of fictitious accounts also is against NASD rules, according to the paper.
The traders also allegedly traded in volumes exceeding the typical discount programs, according to sources. These limits are usually between $5,000 and $10,000 a month, according to the Times and the traders may have violated Wachovia’s stated limits.
Many of the stocks traded were real estate investment trust (REIT) shares, according to sources.