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Wachovia: Auction Rate Securities Probed

The Charlotte, N.C.-based bank says it has received 'inquiries and subpoenas' from state and federal regulators.

Updated from 12:56 p.m. EDT


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brokerage arm has received "inquiries and subpoenas" from federal and state regulators over information regarding auction rate securities.

The Charlotte, N.C.-based bank revealed in its quarterly filing with the

Securities and Exchange Commission

that the agency and several states have requested information concerning the underwriting, sale and subsequent auctions of municipal auction rate securities and auction rate preferred securities.

The company said that further inquiries are expected and that it will cooperate fully with authorities.

The auction rate security market, through which interest rates on the securities are reset at regular auctions, has been under duress since February. That's when auctions began failing, leading to a lack of liquidity for the securities.

Swiss bank UBS last week returned $35 million to Massachusetts cities and other municipalities that bought auction-rate securities they could not unload. The state's attorney general earlier this year began investigating whether the bank misled the municipalities about whether the securities were permissible investments for them under state law.

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Massachusetts also was looking into

Merrill Lynch



Bank of America

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as part of its probe.

Separately, Wachovia has been named in a civil suit, filed on March 19 in the U.S. District Court for the Southern District of New York. The suit "seeks class action status for customers who purchased and continue to hold auction rate securities based upon alleged misrepresentations made with respect to the quality, risk and characteristics of auction rate securities," the filing said.

Wachovia "intends to vigorously defend" the litigation, it says.

Shares of Wachovia recently were up 2% to $28.18.