Merrill and Goldman Sachs Settle Auction-Debt Probe

New York Attorney General Andrew Cuomo reached settlements with three more financial firms over the sale of auction-rate securities, a $330 billion market that collapsed in February.

Settlements were reached with Merrill Lynch, Goldman Sachs and Deutsche Bank, Cuomo said.


Merrill agreed to pay $125 million civil penalty and will buy back up to $12 billion in auction rate securities from investors beginning Oct. 1.

Goldman Sachs will pay $22.5 million civil penalty and will buy back $1.5 billion of the securities.

Deutsche Bank will pay a $15 million civil penalty and buy back $1 billion in securities.

However, the attorney general reiterated in a conference call late Thursday that the settlements are with corporations—not the executives employed by those corporations—adding that some individuals are still under investigation. Cuomo declined to identify the bank or banks that employ those people.

Cuomo said Merrill Lynch's settlement is separate from an agreement the bank made earlier on Thursday with Massachusetts' top securities regulator, William Galvin.

Merrill Heads Off Litigation Threat

Regulators have been investigating the collapse of the $330 billion market to determine who was responsible for its demise and whether banks knowingly misrepresented the safety of the securities when selling them to investors. Several other Wall Street firms have already reached settlements with the regulators.

In a CNBC interview earlier Thursday, Cuomo threatened to bring Merrill to court on Friday unless a settlement was reached.

"Today is the last day," Cuomo said. "If we don't settle today, tomorrow at this time we'll be in court."

Merrill Lynch CEO John Thain then met with Cuomo later Thursday in an attempt to reach a settlement. Merrill also reached a settlement with Massachusetts earlier Thursday.

Merrill earlier this month agreed to buy back an estimated $12 billion in auction-rate securities, though the company said it has already been buying back the debt. Merrill Lynch's plan was on a voluntary basis and put no set timetable on the transactions.

Cuomo's office has reached $42 billion in settlements with five other banks, including Citigroup , Morgan Stanley and Wachovia , during an investigation into whether the banks misled investors who bought the offerings thinking they were secure but in fact were attached to high-risk debts that collapsed.

—AP and Reuters contributed to this report.