Various state regulators and the U.S. Securities and Exchange Commission are investigating whether banks and brokerages that underwrote auction-rate securities—a $330 billion market of long-term debt whose yields reset through weekly or monthly auctions—falsely or fraudulently told clients that the securities were as safe and as liquid as cash.
Below is a list of settlements reached with regulators and voluntary buybacks of the securities, which total nearly $34 billion.
SETTLED WITH REGULATORS
UBS agreed on August 8 to buy back $18.6 billion of debt securities, starting with $8.3 billion from retail and charitable clients beginning on October 31, and as much as $10.3 billion from institutional clients beginning in June 2010. It also agreed to pay a $150 million fine.
CITIGROUP agreed on August 7 to buy back $7.5 billion of its investors' auction rate paper at par to settle charges by the SEC and New York State Attorney General Andrew Cuomo. That would cover an estimated 40,000 retail customers. By November 5, Citigroup plans to have fully reimbursed retail investors. It also plans to try by the end of 2009 to liquidate $12 billion of debt held by more than 2,600 institutional investors. Citigroup will pay a $100 million fine.
MORGAN STANLEY settled with New York State Attorney General Mario Cuomo on August 14 and agreed to buy back $4.5 billion of auction-rate securities from individuals, charities and small- and mid-sized businesses by Dec. 11 and pay a $35 million fine. It will also reimburse customers who sold debt at a loss.
JP MORGAN CHASE settled with New York State Attorney General Mario Cuomo on August 14 and agreed to buy back $3 billion in debt by Nov. 12 and pay a $25 million fine, and reimburse customers who sold debt at a loss.
MERRILL LYNCH said on August 7 it would buy back as much as $12 billion of auction-rate securities from about 30,000 retail clients, starting in January 2009, but has not settled with regulators.
WACHOVIA is in talks about a possible $9.5 billion debt buyback involving regulators led by Missouri, which said Wachovia customers hold about $9.5 billion of auction-rate debt. On August 11, it added $500 million to legal reserves to cover a possible settlement and is in talks with regulators, led by Missouri.
BANK OF AMERICA said on August 7 it had received subpoenas from federal and state regulators.