Part of George Hartzman's Raleigh Area Office USDOL-OSHA Filing

I believe Wachovia, Wells Fargo, KPMG, the Securities and Exchange Commission (SEC), The Financial Industry Regulatory Authority (FINRA) and the Federal Reserve illegally misled Wachovia’s shareholders.  I believe I disseminated inaccurate advice to clients governed by the Investment Advisors Act of 1940, based on information audited by KPMG and withheld by Wachovia and Wells Fargo’s executive management. 

I believe my clients and Wachovia shareholders lost as insiders profited from material undisclosed information.  I believe most financial plans created to earn ‘retention’ bonuses defrauded the government after Wachovia and Wells Fargo merged while in possession of taxpayer funded bailouts.

This journey began by providing an external email address and phone number to Wells Fargo's confidential ethics hot line, after which I was contacted on multiple occasions by investigators on my company email and phone.  Realizing my anonymity was compromised and my family’s safety at risk after the first internal ‘investigation’ was ‘closed’ in the first week of January, 2012, I took the issues to my local manager, after which Wells Fargo's executive management enlisted an outside ‘independent’ investigator who promptly found no merit to my assertions.  Thinking I could mitigate personal risk by contacting regulatory authorities, I filed with the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) DC Office of the Whistleblower which went nowhere.  I then filed with the NC Secretary of State Securities Division, who investigated and referred files to Atlanta's SEC and FINRA offices.  The financial plan/bonus matter went back to FINRA’s DC Office of the Whistleblower from Atlanta and on to Kansas City's FINRA regional office, where Wells Fargo Advisors home office is located.  And then nothing.  American regulatory authorities will not say whether a case exists or if a case is opened or closed, even though I contacted the government during and after interactions with Wells Fargo management, leaving myself and loved ones at risk of reprisal.

My employment at Wells Fargo Advisors was terminated on Monday, October 8, 2012 in direct retaliation for disseminating whistleblower information that our regulatory infrastructure seems unwilling to act upon and our mass media won’t report.  My “U5” states “Termination Explanation: Violation of the firm’s policies, including policies prohibiting the disclosure of the firm’s proprietary and/or internal use only information”.

I have worked as a financial adviser since 1993, taught CPA and attorney financial ethics in North Carolina for the last 10 years, and foresaw the worst financial crisis since the Great Depression, as the performance reports illustrate.

This is the story so far.  

On 3/13/2007, I purchased shares of SDS in my own account.  SDS is a leveraged inverse Exchange Traded Fund (ETF), whose objective is to rise 2% for every 1% the S&P 500 falls.  In the fourth quarter of 2008 I sold SDS in two blocks, realizing a total gain of about 51%.  In July, 2007, I shorted Bear Stearns in my own account and closed the position with a 97% profit on 3/7/2008.  “Shorting” means making an investment that increases in value when other “long” investments fall.  I shorted Pulte Homes, KB Homes and Lennar in my own account, and realized about a 65% gain in October, 2008.

According to Bloomberg News, on March 27, 2008, Wachovia borrowed $3.5 billion from the Federal Reserve’s Term Auction Facility (TAF) which was not disclosed to the firm’s shareholders and not reported in the company’s required securities filings.

On March 28, 2008, Wachovia’s stock lost about 4%.  I believe if Wachovia had announced the loan details at the time as required by law, the stock price would most likely have gone up instead.

Not reporting Federal Reserve material borrowings, credit lines, terms and interest rates is a violation of Sarbanes/Oxley laws, and not informing employees who managed advisory accounts was a violation of fiduciary duties as described in the Investment Advisors Act of 1940.

Bloomberg compiled and reported “21,000 transactions” from 2008 and 2009, after reviewing “29,346 pages of documents obtained under the Freedom of Information Act” from the Federal Reserve, on August 22, 2011, including undisclosed loans to Wachovia and Wells Fargo amongst others which appears to include BB&T and Ally Financial, formerly GMAC.

KPMG was/is the auditor for both Wachovia and Wells Fargo.

The Sarbanes-Oxley Act of 2002, which I have taught in ethics courses for CPAs over the last 10 years, requires executive officers and directors of companies to personally attest that each annual and quarterly SEC securities filings have been personally reviewed and financial statements fairly present, in all material respects, a company’s financial condition.  The CEOs and CFOs of America’s largest banks have certified their reports don’t contain any material misstatements or omissions.

Some banks which received Term Auction Facility (TAF) loans disclosed details in their securities filings per Sarbanes/Oxley laws, like Union Bank & Trust and Peoples Bank of North Carolina.  Wachovia’s, and later Wells Fargo’s securities filings did not account for the TAF loans, total credit lines, interest rates, collateral pledged or amounts of loans outstanding as other banks did as required by Sarbanes/Oxley and SEC rules.

KPMG was/is the auditor for both Wachovia and Wells Fargo.

Multiples of other firms look like they also didn't disclose total credit lines, interest rates, collateral pledged and amounts outstanding from the Federal Reserve.

It appears that Wachovia CEO Robert Steel bought Wachovia’s stock in a breach of trust, confidence and his fiduciary duty to my clients and shareholders while in possession of material, nonpublic information about Wachovia.  Mr. Steel most likely knew about other firm’s borrowings via his time spent at the U.S. Treasury Department.

On July 9, 2008, Robert Steel became president and CEO of Wachovia Corporation after working for Goldman Sachs from 1976 to 2004 and the US Treasury under former Goldman Sachs CEO Henry Paulson from October 10, 2006 until July 9, 2008.  Mr. Steel was “the principal adviser to the secretary on matters of domestic finance and led the department's activities regarding the U.S. financial system, fiscal policy and operations, governmental assets and liabilities, and related economic matters,” according to Wikipedia’s biography. 

On July 22, 2008, Mr. Steel personally purchased 1,000,000 shares of Wachovia’s stock as the company’s TAF borrowing reached $12.5 billion, which appears not to have been disclosed in securities filings audited by KPMG.

In an interview with CNBC's Jim Cramer On Monday, September 15, 2008, Robert Steel said "I think it's really about...transparency.  People have to understand the assets and really be able to say, this is what I own... Complete disclosure.  ...we can work through this with transparency, liquidity and capital.  ...Our strategy was to give you all the data so you could make your own model.  We tell you what we're doing...  ...we're raising capital ourselves by basically shrinking the balance sheet, cutting the dividend, cutting expenses.  We can create more capital ourselves that way...  for now, we feel like we can work through this..." After Jim Cramer asked "Should there be any sort of quick regulatory relief from the SEC that would make life easier to be able to make your bank much stronger?", Mr. Steel responded "I don't think it's about my bank."

I believe Wachovia could have survived as an independent entity if the loans had been disclosed.  The European Central Bank (ECB) publicly announced details of its Long-Term Refinancing Operation (LTRO) in 2011.  The English Guardian newspaper reported "The ECB said 523 banks had borrowed €489bn under the new lending arrangement, [LRTO] and analysts said the large-scale take-up showed that institutions felt that there was no stigma attached to applying for the loans."

After not reporting TAF loans, Wachovia's CEO wrote "I, Robert K. Steel, certify that:  I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 of Wachovia Corporation;  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report" on October 30, 2008.

The Wall Street Journal reported the SEC investigated claims Steel made about the future of the bank before it started talks about a potential merger.

Wachovia stock price on date of first TAF loan: 3/27/2008 - Last Trade: 27.07

Wachovia price on date of completed merger with Wells: 12/31/2008 - Last Trade: 5.54

As of January 31, 2008, there were 1,981,983,990 Wachovia shares outstanding.

27.07 - 5.54 = 21.53 x 1,981,983,990 = $42,672,115,304.70 Wachovia market capitalization lost between the first undisclosed TAF loan and Wells merger.

SEC Interpretation: "Management's Discussion and Analysis of Financial Condition and Results of Operations; Certain Investment Company Disclosures" states "Many financial institutions, such as thrifts and banks, are receiving financial assistance in connection with federally assisted acquisitions or restructurings...If these or any other types of federal financial assistance have materially affected, or are reasonably likely to have a material future effect upon, financial condition or results of operations, the MD&A should provide disclosure of the nature, amounts, and effects of such assistance..." http://www.sec.gov/rules/interp/33-6835.htm

I believe Wachovia’s shareholders were misled by Wachovia and Wells Fargo’s management, KPMG, and at least the Federal Reserve and the U.S. Treasury Department.  Under Sarbanes-Oxley, public companies must promptly disclose information about material changes in financial conditions or operations.  Financial information in press releases or other public disclosures must not “contain an untrue statement” or omit the statement of a material fact necessary to make the statement not misleading.  The company’s accountants are required to attest to and report on the assessments made by company’s management.

On October 3, 2008, the $700 billion Troubled Asset Relief Program (TARP) was signed into law by U.S. President George W. Bush.  The Federal Reserve approved Wachovia’s merger with Wells Fargo on October 12, knowing of unreported Fed loans to both companies.  On October 14, Treasury Secretary Henry Paulson announced the government would overtly "invest" in the nine largest American banks, after the Federal Reserve had already “covertly” loaned money to many of the same firms including Wells Fargo through other means. 

The U.S. Treasury invested $25 billion in taxpayer money between Bank of America and Merrill Lynch.  On October 24, after announcing plans to purchase Merrill Lynch, Bank of America received public criticism for offering about $3.6 billion for Merrill broker retention bonuses to keep them from defecting from the new “bank” owner. 

Wells Fargo received $25 billion from TARP on October 28.

Mr. Steel was at least aware of Wachovia’s Federal Reserve loans since July, 2012, if not the undisclosed loans to multiples of other financial institutions.

Wikipedia states with references, "...the Congressional Oversight Panel [COP] concluded in a report dated February 6, 2009, “the Treasury paid substantially more for the assets it purchased under the TARP than their then-current market value.  The COP found the Treasury paid $254 billion, for which it received assets worth approximately $176 billion, for a shortfall of $78 billion," meaning it appears the government artificially stimulated markets and profitability by paying some in the financial sector more for what some assets were worth, without many financial institutions or the Treasury informing many regulatory authorities, the public, shareholders or Congress.

If Mr. Steel was “the principal adviser…on matters of domestic finance and led the department's activities regarding the U.S. financial system, fiscal policy and operations”, how could he not have known and acted on undisclosed material information?

I believe Sarbanes/Oxley has been violated.  I believe my client's best interests have been violated.  I believe I provided my fiduciary clients inaccurate information provided by Wells Fargo’s executive management and audited by KPMG.  I believe no one has been held accountable.  I believe my clients and Wachovia shareholders lost money as a select few profited from material insider information illegally provided, enabled and consented to by US taxpayer funded government political appointees and employees.

Even though Wachovia didn't receive TARP money, both Wachovia and Wells Fargo borrowed from the Federal Reserve's Term Auction Facility (TAF), whose loans were not disclosed to the public by anyone until December 1, 2010 subsequent to congressionally mandated legislation and legal action.

KPMG was Wachovia and Wells Fargo’s auditor.

Wells Fargo's purchase of Wachovia closed on December 31, 2008.  The Wall Street Journal reported "about $100 billion in wealth disappeared from the Carolinas alone when Wachovia collapsed." 

I believe if the TAF loans had been reported as required by law, a great deal of North Carolinian wealth and jobs would not have been lost.

After not reporting TAF loans, Bloomberg reported Wells Fargo Chairman Richard Kovacevich saying that even though Wells Fargo didn’t want the money, it had to comply with the same rules that the government put on banks that did need it, on March 16, 2009. “If we were not forced to take the TARP money, we would have been able to raise private capital at that time” said Mr. Kovacevich, who maintained that Wells Fargo didn’t need to cut the dividend to preserve cash.  The Boston Globe reported “Wells Fargo chairman Richard Kovacevich initially said he did not want TARP money and later called government stress-tests tied to the program "asinine."

To qualify for TARP, Henry "Hank" Paulson required the institutions to:  "[Require] clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate…”

On December 31, 2009, less than a month after announcing Wells Fargo was to pay off TARP, and stating that “our capital ratios are growing organically …as Wells Fargo’s business model continues to generate capital internally as we historically have, Wells Fargo & Company’s (NYSE: WFC) board of directors  approved a grant of retention performance shares  for President and CEO John G. Stumpf and three other executive officers.”

During 2008, I executed short trades in Goldman Sachs, Capital One, MBIA, Merrill Lynch, Moody’s and State Street Corporation, as well as buying and selling inverse ETF’s covering financials and real estate.

I executed similar trades through the first quarter of 2009, unaware of the Federal Reserve’s secret loans and the Treasury’s largess, as the companies I worked for as well as many others did not disclose material information in their securities filings, even though insiders coincidently profited from equity and stock option transactions.

On 3/31/2009 I had more than 60 Asset Advisor accounts subject to the Investment Advisers Act of 1940, where the financial advisor has a fiduciary duty to act in the best interest of clients.  I charged most of my Asset Advisor accounts annual fees of 1%, meaning Wachovia Securities received $1,000 on a $100,000 account.  I would receive about one third of the fees as net compensation before taxes ect...  I was not paid extra on investments with embedded fees in the accounts, but client annual costs included both, so total annual costs for most clients was a bit above 1%.

On 3/31/2009, total assets under management in my book of business was $35,595,572.83, including both fiduciary and non fiduciary accounts.

Many of my clients entered into many similar trades at relatively the same time, as the following account performance reports show.  These illustrate some of the best un-audited Asset Advisor performance reports in my book of business, as of June, 2010. 

These accounts were governed by the Investment Advisers Act of 1940.  Multiples of Federal and state laws require investment brokers be held to fiduciary standards for advisory accounts, requiring advisors to act solely in the best interest of their clients.  

The solid lines on the following pages show how much more these clients made compared to the dotted lines which represent selected financial markets;

Advisors must disclose any conflict, or potential conflict, to their clients prior to and during a business engagement.  A Wells Fargo Advisors client approved flier states “Fiduciary duty represents the highest degree of trust and confidence that the investment advisor will act in your best interest.  Investment Advisors are governed by the Investment Advisers Act of 1940 and applicable state securities laws, which govern conduct and disclosure requirements, creating a high legal standard referred to as “fiduciary” duty.  As a fiduciary, your investment advisor has the duty to: Make full and fair disclosure of all material facts, particularly where the advisor’s interests may conflict with the client’s.  Have a reasonable, independent basis for their investment advice.  Be loyal to clients.  An advisor will be measured against a higher standard of conduct than a broker.  In such agreements, the firm and your Financial Advisor explicitly acknowledge an advisory relationship and obligations to you.”

I was one of the only advisors at Wells Fargo Advisors who did well in the downturn. After the first quarter of 2009, my personal and client investment performance suffered dramatically as markets went relatively strait back up in defiance of fundamentals and common sense, as many who were aware of undisclosed material information profited. 

As I did not understand what was happening at the time, I took many accounts to cash to curtail losses, but most of my clients did not participate in the run up in the markets, which rose in response in part to massive undisclosed liquidity provided by the Federal Reserve and the Treasury Department.  

Many who remained relatively invested made much of their money back, while me and mine lost.  As a result, I lost client accounts and my personal income fell from 2009 to 2012.

After most of Wachovia’s shareholders were locked into losses on completion of the merger, Mr. Steel ended up far better off, knowing what most didn’t.

On June 22, 2010, Robert Steel was appointed Deputy Mayor for Economic Development by New York City Mayor Michael Bloomberg, after which, Steel resigned his seat on the Wells Fargo board.  According to Morningstar data, Mr. Steel owned 601,903 shares of Wells Fargo in 2010, which would be worth $20,446,644.91 as of October 26, 2012. 

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On Nov 28, 2011, Bloomberg published “Secret Fed Loans Gave Banks Undisclosed $13B,” which stated “The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret.  ...The Fed didn't tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day.  Bankers didn't mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy.”

Rolling Stone's Matt Taibbi "Secret and Lies of the Bailout"

Bloomberg estimated the profits from the undisclosed Federal Reserve Loans was $878.2 million for Wells Fargo, and $149.4 million for Wachovia, as my clients accounts went sideways to down after both companies failed to disclose material information on their financial conditions.

Rolling Stone's Matt Taibbi on George Hartzman's Whistleblower Filing

After reviewing the Bloomberg article, I chose to file an complaint through Wells Fargo’s internal ethics line in early December, 2011. 

On January 4, 2012, an email in response to my ethics line complaint from a Senior Investigative Agent and Vice President from Wells Fargo Corporate Investigations said “Please confer with your manager if you feel the need, but our case is closed.”

I believe Wachovia and Wells Fargo received TARP money but did not disclose secret loans from the Federal Reserve, violating disclosure laws of Sarbanes/Oxley. 

I believe Wachovia and Wells Fargo’s executive management misled taxpayers, shareholders and Congress concerning material information.  In doing so, executives violated fiduciary duties to the firms financial advisors and their clients while gaming executive compensation at the expense of Wachovia shareholders, whose stock probably wouldn’t have dropped as much if the loans had been disclosed under law.

George Hartzman
President and Chief Economist: Think Professional Education
Former Vice President/Investments, Fundamental Choice Portfolio Manager,
Wells Fargo Advisors
Greensboro, North Carolina

The Examiner's Kenneth Schortgen Jr. 

on George Hartzman and Wells Fargo Envision Plans