Wachovia Fined Millions for 'Unsound Practices'

Treasury Department orders Wachovia to pay more than $140 million.


April 25, 2008— -- Wachovia Bank will pay tens of millions of dollars for having "engaged in unsafe or unsound practices" in connection with telemarketing fraudsters, the U.S. Treasury announced Friday.

Without admitting or denying wrongdoing, the bank agreed to pay as much as $125 million in restitution to consumers who were harmed by scams perpetrated by five firms and have not already been reimbursed, the Treasury announcement said. Wachovia will also pay nearly $9 million for consumer education programs and a $10 million civil penalty to the Treasury Department.

Treasury said it believed that thousands of consumers, many of whom were elderly, were harmed by the millions of dollars in fraudulent transactions telemarketing scammers processed through Wachovia. The bank was not directly involved in the scams but made millions in processing fees on the transactions.

Those fees, plus $5 million, will comprise the bank's contribution to consumer education programs.

The bank has also agreed to draw up new policies to better oversee the kinds of transactions, known as remotely created checks, which figured into the fraud schemes.

"Financial fraud of this type is an insidious scourge that preys upon a vulnerable population of Americans," said Rep. Edward Markey, D-Mass. While pleased a settlement had been reached, Rep. Markey expressed concern that victims had to "file claims in order to be reimbursed" and called on the Office of the Comptroller of the Currency (OCC) to develop a way to identify the victims instead.

The Treasury Department had been investigating Wachovia for a year and a half, it said in its announcement Friday. The bank alerted its shareholders to the probe in February. Ten days ago it announced it was likely to pay some form of restitution as a result of the investigation.

"This situation was unacceptable, and we regret it happened," Wachovia spokeswoman Christy Phillips Brown told ABC News Friday. She said the bank "will work diligently" to repay consumers affected by the fraud.

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