Wednesday, November 19, 2008

Wachovia, Golden West Loans Probed by U.S. Prosecutors, SEC

(Bloomberg) U.S. prosecutors and the Securities and Exchange Commission opened an investigation into whether Wachovia Corp. misled borrowers or investors, San Francisco U.S. Attorney Joseph Russoniello said.

Prosecutors are examining whether Golden West Financial, which Wachovia acquired in 2006, fraudulently lured borrowers into mortgages, such as by switching them into more expensive loans or falsifying financial information so they could qualify, Russoniello said. His office and SEC investigators in San Francisco are also scrutinizing whether the banks misled investors about the quality of Golden West's loans, he said.

``We are looking down, in terms of what borrowers were told, and we're looking up at what investors were led to believe,'' Russoniello said in an interview today. He characterized the inquiry as preliminary.

Christy Phillips-Brown, a spokeswoman for Charlotte, North Carolina-based Wachovia and SEC spokesman John Nester declined to comment.

Wachovia, which agreed last month to be acquired by San Francisco-based Wells Fargo & Co. for $14 billion, came within hours of collapse in September after regulators told the bank to find a buyer. Some of the losses stemmed from payment-option adjustable-rate mortgages made by Golden West, the California lender it had purchased for $24 billion near the peak of the housing market.

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