Evergreen Pays Over $40 Million to Settle SEC Charges that it Overvalued Mortgage-Backed Investments


Evergreen Investment Management Company (“Evergreen”), a unit of Wells Fargo & Co., has agreed to pay more than $40 million to settle an enforcement action by the Securities and Exchange Commission (“SEC”) and the Massachusetts Securities Division, according to articles in the Wall Street Journal and Reuters. Evergreen was a subsidiary of Wachovia at the time of the violation, according to Reuters.

The SEC’s enforcement action against Evergreen’s investment advisory arm and its distributor, Evergreen Investment Services, Inc., found that the value of its Ultra Short Opportunities Fund was inflated by as much as 17 percent due to Evergreen’s improper valuation practices. The fund was consistently ranked as a high performer in its class in 2007 and 2008. If Evergreen had properly valued the fund, the SEC found, it would have ranked near the bottom of its category during this time.

When the fund began to lose value as a result of Evergreen having to reprice certain overvalued holdings, only certain shareholders were told what was really going on. Those shareholders were able to exit the fund before suffering additional losses while those left in the dark were not. David P. Bergers, Director of the SEC’s Boston Regional Office, was quoted: “By picking and choosing to disclose negative information to some investors and not others ‘ Evergreen harmed investors and prevented them from making informed decisions by overstating the value of its holdings in mortgage-backed securities.”

The two Evergreen entities agreed to pay $33 million to compensate fund shareholders, as well as $4 million in penalties and disgorgement of approximately $3 million in ill-gotten gains. The money will be distributed to fund shareholders pursuant to the SEC’s Order. The Evergreen entities also were censured and ordered to cease and desist from any further violations of certain federal securities laws.

Reuters noted that Charles Schwab, Morgan Keegan and Fidelity Investments face numerous arbitrations and lawsuits related to the steep losses in their short term bond funds that held high-risk, illiquid mortgage-backed securities. J. Boyd Page, senior partner of Page Perry in Atlanta, stated “We applaud the SEC’s swift action in addressing the Evergreen situation and hope that it is the first of a series of actions against firms that engaged in similar misconduct causing billions of dollars in losses to American investors.”

Page Perry is co-lead counsel in the pending class action against Evergreen. The firm has over 125 years of collective experience representing investors in investment-related litigation and arbitration all over the country. For further information, please contact us.