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WASHINGTON – For alleged conflicts of interest between its research and investment banking operations, Wachovia Capital Markets, LLC has been fined $25 million, the North American Securities Administrators Association said July 5. The settlement ends a more than two-year, multistate investigation of Wachovia Capital Markets, which operates Wachovia Corporation’s institutional brokerage and capital markets businesses. The settlement, the allegations of which were neither admitted nor denied by Wachovia Capital Markets, included failure to supervise its employees in connection with potential conflicts of interest between equity research and investment banking as evidenced by research analysts’ participation in certain presentations with potential investment banking clients. In addition, research analysts’ evaluations sought information regarding their interaction with investment banking and regarding the investment banking activity in their sector, NASAA said. Wachovia Capital Markets occasionally considered whether companies were potential clients in determining to provide research coverage on those companies. Wachovia also allegedly did not keep certain electronic communications as required by state securities laws. As a result, 20% of the e-mail folders requested in November 2002 could not be produced and 42% requested in January 2003 were not produced “promptly.” Wachovia also failed to maintain a system that allowed it to locate and retrieve back-up tapes for its e-mail system, according to NASAA. Under the terms of the settlement, Wachovia Capital Markets will pay a total of $25 million, including: $20 million in penalties for failing to supervise its employees in connection with potential conflicts of interest between equity research and investment banking; $1.65 million in penalties for failing to preserve required books and records; $3 million to be used for investor education, as designated by NASAA’s board of directors and $350,000 for costs associated with the investigation, which will be paid to NASAA. The settlement follows a 28-month investigation of the firm led by state securities regulators from Nebraska, Virginia, and North Carolina, with assistance from Utah and Alabama, and contributions from Georgia, Maine, Connecticut, and New Jersey.

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