NEW YORK — Wachovia Corp. has agreed to pay $25 million to settle allegations from state regulators that its stock analysts issued biased research to help win investment-banking business.
The allegations were similar to those that led 12 investment banks to agree in 2003 and 2004 to pay $1.4 billion to state and federal regulators. The 28-month investigation of the Wachovia Capital Markets division of the North Carolina-based bank company involved only state regulators.
The Utah Division of Securities said Wednesday that, upon final acceptance of the terms, Utah stands to receive $246,500 from the settlement. That includes $30,000 to be used towards investor education, the division said.
The investigation of Wachovia was led by a multistate task force of securities regulators from Utah, Nebraska, Virginia and North Carolina.
The settlement announced Wednesday ends the work of the task force of regulators investigating research conflicts, said Joseph Borg, the director of the Alabama Securities Commission.
"A multistate team of investigators worked long and hard on this investigation, uncovering yet another example of the potential conflicts of interest between research analysts and investment banking that has undermined investor confidence," said Wisconsin Securities Administrator Patricia Struck, in her role as president of the North American Securities Administrators Association.
Wachovia neither admitted nor denied the allegations. "Wachovia Capital Markets is pleased to have resolved the situation," said Christy Phillips, a bank spokeswoman. "For several years, we have had policies and procedures in place voluntarily implementing the industry wide reforms."
Since the global research settlements with the 12 Wall Street investment banks in 2003 and 2004, firms have agreed to physically separate analysts from bankers and to end previous compensation policies that tied analysts' pay to their work on banking assignments. The settlements have eroded the size of some research departments and the coverage of smaller stocks.
The Wall Street research investigations began when New York State Attorney General Eliot Spitzer released e-mails from analysts at Merrill Lynch & Co., in which they denigrated stocks they had endorsed in their research reports.
Wachovia failed to supervise its employees in connection with potential conflicts, the state securities regulators said, and on occasion offered research only on companies that were considered potential clients.
The bank also impeded the investigation by failing to promptly provide e-mails and lacking systems to efficiently locate and retrieve back-up files, the state regulators said.
Under terms of the settlement, $21.7 million of the penalties related to the failure-to-supervise and books-and-records charges will be shared by the 50 states and the District of Columbia. Another $3 million will be used for investor education.
Wachovia shares fell 83 cents, or 1.5 percent, to close at $53.41 Wednesday on the New York Stock Exchange.
Contributing: Jenifer K. Nii