Citi Settles With SEC and Cuomo Over ARS Failure
Citigroup reached a settlement with the SEC and the New York Attorney General, Andrew Cuomo, Thrusday over allegations that the firm made misrepresentations in its marketing and sales of auction rate securities to clients.
Per the settlement, the firm—which was the largest underwriter of ARS—has agreed to buy back roughly $7.5 billion worth of auction rate securities sold to some 40,000 institutional and retail investors nationwide who’ve been stuck with the illiquid investment vehicles since February 12, 2008. The bank will also pay the State of New York a $50 million civil penalty and pay the North American Securities Administrators Association a $50 million penalty.
In addition, Citigroup has agreed to help liquidate the roughly $12 billion in ARS the firm sold to 2,600 retirement plans and institutions by the end of 2009. The settlement also says Citigroup will reimburse losses taken by investors who sold their ARS at a discount after the market failed and hold public arbitrations to resolve investor claims of damages incurred as a result of the illiquidity. Any New York State municipal insurer that paid Citigroup refinancing fees for ARS issued through Citigroup will also be reimbursed. To read the SEC release regarding the settlement, click here. To read the New York AG’s release regarding the settlement, click here.
“Today’s settlement sends a resounding message to the entire auction rate securities industry: This type of deceptive behavior will not be tolerated and we will actively seek justice on behalf of investors in auction rate securities,” said Attorney General Cuomo in a press release. “Our goal is simple: to get investors back their money, and that’s exactly what this deal does,” said Cuomo.
Cuomo says he is investigating the marketing and sales practices of ARS at other firms as well. A similar settlement is expected with UBS any day now over similar allegations. Other states have brought suits as well—Merrill Lynch faces allegations of fraud from the Massachusetts Secretary of the Commonwealth, William Galvin.Acceptable Use Policy blog comments powered by Disqus
