<< All News Wednesday, August 20, 2008

Bimarck, ND - Karen Tyler, North Dakota Securities Commissioner and President of the North American Securities Administrators Association (NASAA), today announced the details of multi-billion dollar settlements reached with five investment firms and state and federal securities regulators. The agreements with Citigroup, UBS, JP Morgan, Morgan Stanley, and Wachovia will provide liquidity to investors who purchased auction rate securities (ARS), and settle allegations that the firms made misrepresentations in the marketing and sale of ARS to their clients.

Within the past two weeks, agreements have been reached that will restore nearly $35 billion of liquidity to thousands of investors nationwide. The agreements follow investigations led by a task force of state securities regulators into complaints from investors that investment firms misled investors by portraying ARS as safe, liquid, cash equivalent investments, when in fact they faced increasing liquidity risk. The ARS markets froze in February this year, leaving thousands of investors across the country without access to their money. This settlement represents a major victory for investors who for months now have been unable to access their funds as originally promised said Tyler. Securing a liquidity solution for investors has been the primary objective of our investigations, and this agreement achieves that goal.

Citigroup, UBS, JP Morgan, Morgan Stanley, and Wachovia are five of the larger participants in the auction rate securities market, functioning as underwriters, auction agents, and sellers of the securities, and collectively are responsible for more than half of all auction rate securities owned by investors. The settlements reached thus far accomplish precisely the kind of relief investors have demanded, and deserve. said Tyler. The investigations continue as to other market participants.

While buyback terms vary to a degree between the settling firms, all will have offered to buyback auction rate securities from their individual investor clients beginning as early as Sept. 30, 2008 and no later than January 2, 2009.

Under the proposed settlements, the firms will also:

  • Fully reimburse all individual 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 individual 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 the firms since August 1, 2007.

Institution Approximate Number of Accounts Approximate Amount of Buyback (in billions)Citigroup 38,000 $7.3UBS 40,000 $11.5Morgan Stanley 19,500 $4.5JP Morgan Chase 6,000 $3.0Wachovia 43,000 $8.5Totals: 146,500 $34.8

Tyler participated in the negotiations in her capacity as NASAA President, and extends her appreciation to the members of the NASAA task force, the New York Attorney General and the Enforcement Staff of the Securities and Exchange Commission.

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