A team of state regulators raided the headquarters of

Wachovia's

(WB) - Get Report

securities division on Thursday, the latest move in an investigation into the role banks played in the freezing up of the auction-rate securities market.

A team of 10 securities regulators from Missouri, Illinois, Massachusetts, New Jersey, Pennsylvania and other states entered Wachovia Securities' headquarters in St. Louis. The investigation is being spearheaded by Missouri Secretary of State Robin Carnahan, who is seeking documents and records regarding Wachovia's sales practices, marketing strategies and internal evaluations of the auction-rate securities market.

Carnahan has served subpoenas to over a dozen Wachovia Securities agents and executives to gather more information as well.

The Missouri Securities Division initially launched an investigation into several banks in April, but says Wachovia has "not fully complied" with its requests for documents, emails, transcripts and other records.

Wachovia spokeswoman Christy Phillips-Brown responded by saying that "many securities firms, including Wachovia, are responding to inquiries from regulators about the auction-rate securities industry. The discussions that are occurring today are part of this ongoing process."

Auction-rate securities are long-term debt instruments that are typically bought and sold at weekly or monthly auctions. The interest rate changes with bids. The investments were once seen as similar to money-market accounts in terms of liquidity -- investors believed they could access the cash at any time, since the securities frequently changed hands.

In February, however, as the credit markets dried up and liquidity froze, investors became unable to cash in on their auction-rate securities. Thousands of auctions failed and banks refused to honor the investments for holders who wanted to take their money and run.

Missouri's securities agency has received more than 70 formal complaints regarding auction rate securities over the past four months, representing over $40 million of frozen investments.

"Hundreds of Missouri investors have called my office because of inability to access their money," says Carnahan. "They were told these investments were safe and easy to cash in, but now they cannot run their business, make medical payments, or pay school tuition."

Massachusetts Secretary of State William Galvin filed a lawsuit against

UBS

(UBS) - Get Report

last month, claiming the firm misled clients about the liquidity of auction-rate securities. UBS said on Tuesday that it is developing a system to buy up to $3.5 billion worth of auction-rate securities, then repackage the debt and sell it to money-market funds.

The U.S. attorney's office for the Eastern District of New York is also investigating whether two

Credit Suisse

(CS) - Get Report

brokers lied to investors about what type of assets were behind the auction-rate securities they were purchasing. The brokers, Eric Butler and Julian Tzolov, resigned from the firm in September.

The Missouri Securities Division says it is also investigating UBS,

Commerce Bank NA

-- which has been acquired by

Toronto-Dominion Bank

(TD) - Get Report

-- and

Stifel, Nicolaus & Co.

(SF) - Get Report

.

In addition, several civil suits have been filed against banks and Wall Street firms that offered auction-rate securities to their clients, claiming that the products were marketed in a deceptive manner.