Cuomo, SEC In Auction-Rate Pacts With Brokerages

Cuomo, SEC In Auction-Rate Pacts With Brokerages - 6/3/2009

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Cuomo, SEC In Auction-Rate Pacts With Brokerages
Jonathan Stempel

Reuters. June 3, 2009
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EXCERPT: New York Attorney General Andrew Cuomo said six major banks have satisfied the terms of settlements over their sale of auction-rate debt that became illiquid despite being marketed as being as safe as cash. The assurances of discontinuance with units of Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz), Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research, Stock Buzz), Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz), JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz), as well as Royal Bank of Canada's (RY.TO: Quote, Profile, Research, Stock Buzz) RBC Capital Markets, follow settlements last summer over the February 2008 seizing up of the $330 billion auction-rate market. Bank of America, Deutsche Bank and RBC also entered final settlements in related U.S. Securities and Exchange Commission cases, providing for the reimbursement of nearly $6.7 billion to about 9,600 customers. Auction-rate debt has rates that reset in periodic auctions, but regulators accused brokerages of misleading investors into using the debt as a cash substitute. After the market froze when dealers stopped taking part in auctions, many investors could sell the debt only at a loss or not at all. Cuomo on Wednesday said 11 securities firms have agreed to buy back more than $61 billion of the debt, and that his latest agreements detail how banks have and will continue to provide liquidity. The settlements have also resulted in several hundred million dollars of fines. "Our goal has been to give investors relief from the collapse of the auction-rate securities market, which is exactly what these deals do," he said in a statement.

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