The asset-management arms of Bank of America Corp. and Royal Bank of Canada became the latest banks to buy back billions of dollars in auction-rate securities amid probes into how the complex securities were marketed and sold.
The agreements are with the Securities and Exchange Commission, New York Attorney General Andrew Cuomo and members of the North American Securities Administrators Association.
Cuomo said Bank of America will pay a $50 million civil penalty and RBC will pay a $9.8 million as part of the agreements, which require the duo to buy back $5.5 billion in ARS. In Bank of America's case, the company last month reached an agreement with Massachusetts to buy back an estimated $4.5 billion of ARS; the SEC and other Nassa members didn't sign on to the deal at the time.
"In today's economic climate, it's more important than ever for investors to be able to access their money," Cuomo said in a statement. "Returning billions of dollars back to investors not only protects their interests but also increases confidence in the entire market."
Wednesday's agreements settle allegations that the banks made misrepresentations in their marketing and sales of the securities. The companies will fully reimburse retail investors who sold their auction-rate holdings at a discount after the market collapsed in February and will participate in special arbitration proceedings to resolve investor claims for damages. They also will reimburse refinancing fees to any municipalities that issued ARS through these companies since last August.
Cuomo said Bank of America will offer to buy back all illiquid auction-rate securities from its retail customers, small businesses with less than $15 million on deposit and charities with less than $25 million on deposit.
RBC will offer to buy back the securities from 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, Cuomo said.
More than a dozen banks and securities companies, including Citigroup Inc., UBS AG and JPMorgan Chase & Co., have reached agreements with regulators in recent months to repurchase more than $50 billion in ARS at par, mostly from retail and smaller investors.
The securities are debt instruments whose interest rates are meant to be reset periodically at daily, weekly or monthly auctions. Several auctions failed in February, driving up ARS interest rates while leaving investors locked into long-term investments that had been promoted as safe and liquid.