Saturday, April 30, 2011
Wells Fargo To Pay $6M To Zunis
By Thomas J. Cole
Journal Staff Writer
Today's theme: Business relationships gone bad in Indian Country.
Two Wells Fargo companies have agreed to pay the Zuni Tribe more than $6 million to settle allegations of wrongdoing related to investment of the tribe's money.
And in other news, a pueblos corporation has reached a settlement with its private partners in a dispute over development of the old Albuquerque Indian School property.
The settlements involving the Zuni Tribe were disclosed by the Financial Industry Regulatory Authority and the U.S. Securities and Exchange Commission.
The biggest settlement came as a result of a complaint that the tribe filed in June 2009 against Wachovia Securities, which has since been renamed Wells Fargo Advisors as a result of the Wells Fargo/Wachovia merger.
The tribe alleged Wachovia Securities made unsuitable investments with money from the pension plan and trust for tribal employees. A Wachovia broker denied investments were improper.
Nevertheless, Wells Fargo Advisors last July agreed to pay the Zuni Tribe $4.75 million to settle the complaint filed with the Financial Industry Regulatory Authority, according to FINRA.
Wells Fargo Advisors also agreed to assist the tribe in the sales of investments in collateralized debt and loan obligations and a limited partnership and to cover some investment losses. The losses totaled about $400,000.
A sister company, Wells Fargo Securities, agreed to pay another $1.3 million to the Zuni Tribe as part of a much larger settlement announced this month with the Securities and Exchange Commission.
The SEC said Wachovia Capital Markets, which has since been renamed Wells Fargo Securities, engaged in misconduct in the sales of collateralized debt obligations tied to the performance of home mortgage-backed securities.
The SEC said the Zuni Tribe paid 90 cents or more on the dollar for some CDOs marketed in late 2006 and early 2007 even though Wachovia Capital Markets had reduced their price to less than 53 cents on the dollar for accounting purposes because of trouble in the U.S. housing market.
"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 when telling buyers that assets are priced at fair market value," Robert Khuzami, director of the SEC Division of Enforcement, said in a news release.
While not admitting wrongdoing, Wells Fargo Securities agreed to pay a total of $11.2 million in restitution for investors and penalties.
The Zuni Tribe, located in western New Mexico and eastern Arizona, has 12,000 members.
On the former Albuquerque Indian School property, the Indian Pueblos Federal Development Corp. teamed with private partners to construct two buildings in the mid-2000s for lease to the U.S. Bureau of Indian Affairs.
I reported in January 2010 that both the corporation and the private partners had pocketed millions of dollars in questionable payments of borrowed construction money.
Since that time, the governors of New Mexico's 19 pueblos have replaced those in charge of managing and overseeing the corporation. IRS agents also dropped by last summer to seize equipment and documents.
Corporation President Mike Canfield said the corporation recently reached a settlement with the private partners, which are companies affiliated with Albuquerque businessmen Gary Plante and Brent DePonte.
Canfield said the partners gave up all rights to future development on the property but will retain minority ownership interests in the buildings leased to the BIA.
In exchange, he said, the partners will receive about one-third of the buyout money they had proposed. A proposal made in the fall of 2009 called for the partners to receive $9.5 million.
Pueblos put up the settlement money.
"It's kind of a bittersweet development for the pueblos," Canfield said. "We're excited about the future of the project and what development could entail."
In addition to the BIA-leased buildings, a hotel has been built on the property in recent years and more office buildings and retail construction are possible, Canfield said. The Indian Pueblo Cultural Center, opened in 1976, also is on the property.
The private development partners filed a lawsuit in 2009 that alleged the pueblos corporation failed to follow through on a promise to pay a Plante company more than $750,000. The money was due, the suit said, because the corporation didn't use Plante's company in development of the hotel.
The tribal corporation had complained about the partners failing to attract development and refusing to put up money for infrastructure needed for construction.
"The money the tribe is receiving helps restore employee pension funds as well as some of the tribe's general investment funds — funds dedicated for the tribe's long-term natural resource programs, facility and community needs, and economic development," the Zuni Tribe said in a written statement.
Repeated attempts to reach Plante, DePonte and their lawyers for comment have been unsuccessful.
UpFront is a daily front-page news and opinion column. Comment directly to Thom Cole at firstname.lastname@example.org or (505) 992-6280 in Santa Fe. Go to www.abqjournal.com/letters/new to submit a letter.