Wachovia, affiliates sued over bond fund losses

BOSTON (Reuters) - Investors sued U.S. bank Wachovia Corp WB.N and its affiliates on Monday, charging them with causing losses through the incorrect valuation of a now-defunct bond fund's shares and making risky investments in the fund.

The lawsuit against Wachovia, two of its affiliates and two group executives follow lawsuits against other financial firms, including Fidelity Investments, State Street Corp (STT.N) and Charles Schwab Corp (SCHW.O), over bond fund losses.

Investors Albert Krantzberg and Irene Krantzberg claimed in the suit filed in a federal court in Boston that the fourth- largest U.S. bank and the other defendants "incorrectly" valued and sold the shares of the Evergreen Ultra Short Opportunities Fund "at an artificially inflated price" between August 2007 and June 2008.

The suit said the plaintiffs were also hurt as investors were allowed by the defendants to sell their holdings at "too high a price."

"As shareholders redeemed their shares, the selling shareholders were overpaid, depleting the fund's reserves and harming the plaintiffs," the investors said in the complaint.

"Plaintiffs purchased at an inflated price and were also damaged by the fund's failure to properly redeem the shares of the fund investors at a price representing the correct net asset value."

Wachovia and Evergreen Investments, the money management arm of the bank, declined to comment on the charges.

The fund, which invested in asset and mortgage-backed securities, as well as other short-duration instruments, was liquidated in June because its net asset value had dropped about 20 percent in 2008. Evergreen announced in June that the fund's shareholders will be paid $7.48 per share cash.

Besides Wachovia, the suit also names as defendants Evergreen Fixed Income Trust, Evergreen Distributor Inc, Dennis Ferro, chief executive of Evergreen Investments, and Kasey Phillips, principal financial officer of the trust. The suit seeks class-action status.

The fund's prospectus highlighted the safe nature of the investments, but it invested in risky, illiquid securities, the complaint said.

"These statements were materially false or misleading because the fund, in fact, employed a strategy of investing in highly risky securities that were illiquid or otherwise became difficult to value," it said.

The suit seeks damages from the defendants and for the plaintiffs purchases of the fund's shares to be unwound.

Evergreen Investments had about $258 billion in assets under management as of March 31.

Wachovia shares closed down 9.9 percent at $17.11 on Monday after a Wall Street analyst said investors should sell the stock due to its poor fundamentals.

(Reporting by Muralikumar Anantharaman; Editing by Andre Grenon)