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JPMorgan, Morgan Stanley Settle Auction-Debt Probe

CNBC With Wires|JPMorgan, Morgan Stanley Settle Auction-Debt Probe
Thursday, 14 Aug 2008 | 11:48 AM ET

JPMorgan Chase and Morgan Stanley agreed to repurchase a combined $7 billion in auction-rate securities as part of a settlement with New York Attorney General Andrew Cuomo and other regulators.

The New York Stock Exchange, downtown New York City.
Oliver Quillia for CNBC.com
The New York Stock Exchange, downtown New York City.

Morgan Stanley and JP Morgan Chase will also pay a combined $60 million in fines, Cuomo announced at a news conference carried live on CNBC.com.

Morgan Stanley will pay $35 million while JPMorgan will pay $25 million, Cuomo said.

Last week, regulators reached settlements that required Swiss bank UBS to repurchase $18.6 billion in the securities, while Citigroup agreed to buy back $7 billion of the securities.

Auction-rate securities are investments that resembled corporate debt, but with interest rates reset at regular auctions. The market for the securities collapsed in February amid deterioration in the broader credit markets.

Regulators have been investigating whether brokerages and banks falsely told clients that auction-rate securities—a $330 billion market—were as safe and liquid as cash.

Other firms involved in the probe include GoldmanSachs, Lehman Brothers and Wachovia .

Cuomo's office, which has invoked the state's powerful Martin Act, has said it wants all banks and brokers to make tens of thousands of U.S. investors whole by repurchasing all of the debt at face value.

—AP and Reuters contributed to this report

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