Citigroup Inc. is in negotiations with state and federal regulators to resolve allegations of wrongdoing in the auction-rate securities market that could result in buying back several billion dollars of the securities and paying a sizable fine, according to people familiar with the matter.

New York Attorney General Andrew Cuomo threatened to sue Citi last week over its marketing and sales of the securities. His office has said that the company wrongly told customers the securities were safe, liquid, and cash-equivalent, and that it failed to tell investors the market was kept afloat from August of last year until this year primarily because Citi made bids in auctions for the securities. Mr. Cuomo also has accused Citi of destroying evidence related to the matter after an April subpoena.

Citi has been in talks this week with representatives from Mr. Cuomo's office, other state regulators, and the Securities and Exchange Commission, according to people familiar with the matter.

The company could be forced to spend more than $5 billion to buy out individuals, charities, and other investors in the securities, according to the people, and it could face a fine of as much as $100 million.

Representatives of Mr. Cuomo's office and the SEC would not discuss the matter. A spokeswoman for Citi, one of the largest underwriters of auction-rate securities, would not discuss the allegations.

Alex Samuelson, a Citi spokesman, said it had issued guidelines in recent months to its brokers on retaining and preserving all forms of communication with investors related to auction-rate securities dating back to January 2003.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.