| Wednesday, November 28, 2007
Nancy Condon (202) 728-8379
Brendan Intindola (212) 656-4236
FINRA Fines Wachovia Capital Markets $300,000 for Deficient Disclosures in Research Reports
Washington, D.C. — The Financial Industry Regulatory Authority (FINRA) announced today that it has censured and fined Wachovia Capital Markets, LLC $300,000 for violations of FINRA's research analyst conflict of interest disclosure rules.
"This case strikes at the heart of FINRA's research disclosure program, which was put into place in 2002 in part to combat incentives that could lead to biased research," said Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement. "These critical reforms require firms to provide investors with information about actual and potential conflicts of interest that could influence analysts' conclusions about investing in publicly traded companies. Wachovia failed to ensure that certain of its research reports contained this vital information."
FINRA found that from June 2004 to May 2006, Wachovia failed to include in 40 research reports a total of 56 disclosures concerning Wachovia's financial relationships with subject companies. In 20 of those reports, Wachovia failed to disclose that it managed or co-managed a public offering of securities issued by the subject company.
In other research reports, Wachovia failed to disclose that it received compensation from the subject company for investment banking services, that it owned an interest in the common stock of the company or that it was making a market in the securities of the company.
Additionally, FINRA found that from March 2004 to July 2007, in over 15,000 research reports, Wachovia included a disclaimer stating that the firm and its affiliates "may" own an interest in the securities of the subject company. This disclaimer is inconsistent with FINRA's requirement that firms affirmatively disclose whether they own one percent or more of the common equity stock of the subject company. By using this disclaimer, Wachovia ignored specific guidance set forth in Notice to Members 04-18, published in March 2004, which expressly instructs firms that the use of general disclaimers that are inconsistent with required disclosures violates FINRA's rules.
Wachovia also failed to adequately implement supervisory procedures concerning its research disclosures.
In settling this matter, Wachovia neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2006, members of the public used this service to conduct more than 4.7 million searches for existing brokers or firms and requested more than 207,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.finra.org/brokercheck. Investors can also access this service by calling (800) 289-9999.
FINRA is the largest non-governmental regulator for all securities firms doing business in the United States. Created in 2007 through the consolidation of NASD and NYSE Member Regulation, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business - from registering and educating industry participants to examining securities firms; writing rules; enforcing those rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms.
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