The $330 billion auction-rate securities market normally allows issuers to borrow money for the long term, but at lower, short-term rates.
But demand at the daily auctions for the securities faded earlier this year amid a broader flight from risky investments, leaving their owners unable to redeem them for cash.
Regulators say Wachovia and other banks misled investors into believing that auction-rate debt, which has rates that reset in periodic auctions, was the equivalent of cash.
"They marketed things to investors making specific representation about liquidity but failing to disclose to them that there were potential risks out there in the marketplace that might affect their ability to actually provide the liquidity they claimed was available,'' said Merri Jo Gillette, director for the SEC regional office in Chicago.
Wachovia CEO Robert Steel blamed "unprecedented market conditions'' for the problems and said the company was happy to resolve the matter.
Merrill Lynchalso offered to buy back as much as $12 billion of the debtbut has not settled with regulators. New York Attorney General Andrew Cuomo said Friday the state plans to take legal action to force a deal.
On Thursday, Morgan Stanley agreed to buy back $4.5 billion in debt and pay a $35 million fine, and JPMorgan Chase agreed to buy back $3 billion and pay a $25 million fine.
That followed deals last week in which Citigroup and Swiss bank UBS agreed to buy back a combined $26 billion of the debt, and pay $250 million in fines.
$50 Million Fine, No-Interest Loans
Wachovia's initial buyback is slated for Nov. 10 through Nov. 28. Wachovia will offer to repurchase $3.1 billion between June 10 and June 30, 2009, according to securities regulators.