A Black Eye on Wachovia/First Union Merger

WASHINGTON – For failing to disclose its $500 million purchase of First Union Corp. stock prior to its merger with the bank, Wachovia Corp. will have to pay a $37 million civil fine. According to an SEC lawsuit, Charlotte, N.C.-based Wachovia and First Union failed to disclose in quarterly reports and in a joint proxy statement-prospectus filed in connection with the merger, that Wachovia intended to – and did in fact – purchase the stock. At the time, First Union and Atlanta based-SunTrust Banks, Inc. had launched competing bids for Wachovia. Wachovia favored First Union’s bid, which offered Wachovia shareholders shares of First Union stock in exchange for their Wachovia shares, the SEC alleged. As a result, Wachovia’s shareholders were unable to evaluate the effect of Wachovia’s purchases of First Union shares before voting on the competing bids. Wachovia’s merger with First Union in late 2001 created the nation’s fourth-largest banking company with operations from Florida to Connecticut. “A company must provide full and accurate disclosure with respect to its activities in the market during a takeover battle and cannot just rely on boiler plate disclosures,” said Thomas Newkirk of the SEC’s Division of Enforcement. “The substantial penalty here reflects not only the seriousness of the disclosure violations but also the Company’s failure to meet its legal obligations in the course of an SEC investigation,” added Stephen M. Cutler, Director of the Enforcement Division at the SEC.