Wells Fargo & Co., the biggest U.S. home lender, on Tuesday agreed to pay $11.2 million to settle regulatory claims that Wachovia Capital Markets improperly sold two collateralized debt obligations (CDOs) tied to home mortgages, Bloomberg reported.
 
The Wachovia unit, acquired by Wells Fargo in the wake of the 2008 credit crisis, charged “undisclosed excessive markups” while selling stakes in a CDO to the Zuni Indian tribe and an individual investor as housing markets began collapsing, the U.S. Securities and Exchange Commission (SEC) said Tuesday. Wachovia also falsely claimed it acquired assets for a CDO “on an arm’s-length basis,” the SEC said.

“Wachovia caused significant losses to the Zuni Indians and other investors by violating basic investor-protection rules — don’t charge secret excessive markups, and don’t use stale prices,” SEC Enforcement Director Robert Khuzami said in the statement.

Wachovia charged the Zuni Indian tribe and the unidentified individual investor more than 70 percent above the market price when it sold them an investment in Wachovia’s $1.5 billion Grand Avenue II CDO in 2007, the SEC said. By the end of that year, the securities linked to the product had been downgraded, and the transaction went into default as of February 2008.

Wells Fargo agreed to resolve the SEC claims, related to alleged violations in 2006 and 2007, without admitting or denying wrongdoing.

Regulators are investigating banks’ sales of CDOs — pools of assets packaged into new securities — after bundles of subprime mortgages disguised as highly rated assets helped spark the worst financial crisis since the Great Depression. Goldman Sachs Group Inc. agreed last year to pay $550 million to settle improper-sales claims.