Attorney General Andrew M. Cuomo today announced two more agreements to provide liquidity to consumers who purchased auction-rate securities. Banc of America Securities LLC and Banc of America Investment Services, Inc. (“Bank of America”) will return over $4.5 billion to investors across New York State and the nation. RBC Capital Markets Corporation (“RBC”) will return over $850 million to investors across New York State and the nation. These agreements settle allegations that Bank of America and RBC made misrepresentations in its marketing and sales of auction-rate securities. Bank of America and RBC marketed and sold auction-rate securities as safe, cash-equivalent products, when in fact they faced increasing liquidity risk.
“In today's economic climate, it's more important than ever for investors to be able to access their money. Returning billions of dollars back to investors not only protects their interests but also increases confidence in the entire market,” said Attorney General Andrew Cuomo. “Since the beginning of our investigation into the auction-rate securities market, our objective has been to provide relief to investors who have been unable to sell auction-rate securities as a result of widespread auction failures in February 2008. With these settlements, we’ve returned over $50 billion back into investors’ hands, providing relief to the overwhelming majority of individual investors who were fraudulently sold auction-rate securities.”
Similar to prior settlements in the industry-wide investigation, Bank of America and RBC have agreed to buyback auction-rate securities from certain customers. Bank of America has agreed to offer to buy back all illiquid auction-rate securities from all of Bank of America’s retail customers, small businesses with less than $15 million on deposit and charities with less than $25 million on deposit. RBC has agreed to offer to buy back all illiquid auction-rate securities from all of RBC’s individual customers; charities, non-profits and government entities with less than $25 million on deposit; and all other entities with less than $10 million on deposit.
Under the settlements announced today, Bank of America and RBC will also:
- Fully reimburse all retail investors who sold their auction-rate securities at a discount after the market failed;
- Consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by retail investors as a result of not being able to access their funds;
- Undertake to expeditiously provide liquidity solutions to all other institutional investors;
- Reimburse all refinancing fees to any municipal issuers who issued auction-rate securities through these firms since August 1, 2007;
- Bank of America will pay civil penalties in the amount of $50 million;
- RBC will pay civil penalties in the amount of $9.8 million.
From the beginning of his investigation into the auction-rate market, the Attorney General’s objective has been to bring relief to investors stuck with illiquid auction-rate securities. The Attorney General has now settled with twelve firms providing for approximately $51 billion in investor buy-backs:
Institution Approximate Number of Accounts Approximate Amount of Buyback
- Citigroup 38,000 $ 7.3 billion
- UBS 40,000 $ 11.5 billion
- Morgan Stanley 19,500 $ 4.5 billion
- JP Morgan Chase 6,000 $ 3.0 billion
- Wachovia 43,000 $ 8.5 billion
- Merrill Lynch 30,000 $ 8.0 billion
- Goldman Sachs 1,500 $ 1.5 billion
- Deutsche Bank 1,500 $ 1.0 billion
- Fidelity Investments 340 $ 300 million
- Credit Suisse Group 754 $ 548 million
- Bank of America 5,800 $ 4.5 billion
- RBC 2,267 $ 850 million
- Totals: 188,661 $ 51 billion
Attorney General Andrew Cuomo said: “From day one our mission has been to get investors their money back. Working with other regulators, we have been able to obtain relief for tens of thousands of investors who hold more than $51 billion worth of illiquid auction-rate securities.”
The Attorney General thanked Fred J. Joseph, NASAA president and the Colorado Securities Commissioner, as well as Karen Tyler, NASAA past-president and the North Dakota Securities Commissioner, and the NASAA multi-state ARS Task Force, for their efforts in achieving day’s settlement. In addition, the Attorney General thanked the enforcement staff of the Securities and Exchange Commission for their assistance and cooperation in the auction-rate securities investigations.
Assistant Attorneys General Vicki Andreadis, Thomas Teige Carroll, Peter Dean, Pamela Lynam Mahon, Armen Morian, Christopher Mulvihill, Daniel Sangeap, Alisha C. Smith, and Ethan Zlotchew, conducted these investigations along with Kitty Kay Chan, Economist for the Division of Economic Justice, all under the supervision of David A. Markowitz, Chief of the Investor Protection Bureau, and Eric Corngold, Executive Deputy Attorney General for Economic Justice.
Cuomo’s auction-rate securities investigation continues as to other market participants.
