"SEC Charges City of Harrisburg for Fraudulent Public Statements" and Hartzman v Wells Fargo with a Mash Up

"Washington, D.C., May 6, 2013 — The Securities and Exchange Commission today charged the City of Harrisburg, Pa., with securities fraud for its misleading public statements when its financial condition was deteriorating and financial information available to ...investors was incomplete...

An SEC investigation found that the misleading statements were made in the city’s budget report, annual and mid-year financial statements, and a State of the City address."

...another public statement available to investors on the city’s website was the annual State of the City address... The address only discussed the municipal resource recovery facility as a situation that was an “additional challenge” and an “issue that can be resolved.” The address was misleading because it failed to mention that by this time, Harrisburg had already made $1.8 million in guarantee payments on the resource recovery facility bond debt. It also omitted the total amount of the debt that the city would likely have to repay from its general fund...

According to the SEC’s order, Harrisburg’s 2009 mid-year fiscal report ... did not reference any of the guarantee payments the city had made on the municipal resource recovery facility debt, which at this mid-year point totaled $2.3 million.

http://www.sec.gov/news/press/2013/2013-82.htm
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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. SEC Rule 10b-5 prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security.

The statements by the [Wells Fargo/Wachovia] officials were part of, and could have altered, the total mix of information available to the market. There is a substantial likelihood that a reasonable investor would consider the financial condition of [Wells Fargo/Wachovia] important in making an investment decision, and there were no other disclosures made by [Wells Fargo/Wachovia] as part of the total mix of information available to enable investors to consider other information. These [Wells Fargo/Wachovia] officials’ statements were the principal source of significant, current information about the issuer of the security and thus could reasonably be expected to influence investors and the secondary market. Because statements are evaluated for antifraud purposes in light of the circumstances in which they are made, the lack of other disclosures by [Wells Fargo/Wachovia] may increase the risk that [Wells Fargo/Wachovia] officials’ public statements may be misleading or may omit material information.

https://www.sec.gov/litigation/investreport/34-69516.htm

“In an information vacuum caused by [Wells Fargo/Wachovia]'s failure to provide accurate information about its deteriorating financial condition, ...investors had to rely on other public statements misrepresenting city finances,” said George S. Canellos, Co-Director of the SEC’s Division of Enforcement. “Statements that are reasonably expected to reach the securities markets, even if not prepared for that purpose, cannot be materially misleading.”

The SEC’s order requires [Wells Fargo/Wachovia] to cease and desist from committing or causing violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

In its Report of Investigation to address the secondary market disclosure responsibilities of [Wells Fargo/Wachovia] officials when they make public statements about [Wells Fargo/Wachovia], the SEC notes that [Wells Fargo/Wachovia] officials should be mindful that their written or oral public statements may affect the total mix of information available to investors. This could result in anti-fraud liability under the federal securities laws for the [Wells Fargo/Wachovia] officials making such statements if they are materially misleading or omit material information."

http://www.sec.gov/news/press/2013/2013-82.htm
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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" after Mr. Steel personally purchased 1,000,000 shares of Wachovia’s stock On July 22, 2008, as the company’s TAF borrowing reached $12.5 billion, which appears not to have been disclosed in securities filings audited by KPMG.

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.

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."

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.”