Wachovia Corp. agreed to pay $37 million to settle charges by the Securities and Exchange Commission that it didn’t fully disclose certain stock purchases before its 2001 merger with First Union Corp.
The SEC penalized Wachovia, in part, for not cooperating fully with the investigation, reflecting a new but expanding policy by the regulator.
The commission alleged that the pre-merger Wachovia Corp. and First Union failed to disclose in quarterly reports and in a joint proxy statement-prospectus that Wachovia had bought $500 million of First Union common stock (FTU) after both First Union and SunTrust Banks Inc. had launched competing bids for Wachovia.
First Union’s bid, which was favored by the pre-merger Wachovia, offered First Union shares in exchange for Wachovia shares. The SEC maintained that Wachovia “knew or should have known that its First Union purchases during this period could have the effect of supporting the price of FTU, which in turn would support the value of First Union’s merger proposal and make it appear more attractive.” But Wachovia shareholders were unable to evaluate the effect of those purchases before voting on the competing bids, added the SEC.
“A company must provide full and accurate disclosure with respect to its activities in the market during a takeover battle, said Thomas C. Newkirk of the SEC’s Division of Enforcement, in a statement. Added Newkirk, companies “cannot just rely on boilerplate disclosures.”
The commission also admonished Wachovia for “incomplete and untimely document productions” that “unnecessarily prolonged the SEC staff’s investigation.” Stephen M. Cutler, director of the Enforcement Division, noted that “the substantial penalty here reflects not only the seriousness of the disclosure violations but also the company’s failure to meet its legal obligations in the course of an SEC investigation.”
As is standard in such cases, Wachovia agreed to the settlement without admitting or denying the allegations in the SEC complaint. A Wachovia spokeswoman told Reuters that the settlement will not have a material adverse affect on the company’s consolidated financial position or on its results.