JPMorgan Chase & Co. and Morgan Stanley Thursday became the latest financial companies to buy back auction-rate securities as part of an agreement to end probes by state regulators into how they marketed the complex securities.
The two companies agreed to buy back more than $7 billion of the securities. At a press conference New York Attorney General Andrew Cuomo said JPMorgan Chase would pay $25 million in civil penalties and Morgan Stanley $35 million. Neither company admitted or denied wrongdoing. The penalty payments are to be divided between New York and members of the North American Securities Administrators Association, with New York getting about $25 million.
"The industry is taking responsibility for correcting a problem they helped create, and that's a good thing," Mr. Cuomo said.
Also Thursday, Bloomberg News reported that Wachovia Corp. was on the verge of settling with regulators.
Under its agreement, JPMorgan Chase is to buy back all illiquid auction-rate securities from retail clients, charities, and small businesses by Nov. 12, Mr. Cuomo said. Morgan Stanley is to do the same by Dec. 11, he said. The companies also will pay damages to investors who sold their holdings at a loss, he said.
The companies also agreed to reimburse all refinancing fees to any New York state municipal issuers that issued auction-rate securities through either firm since last August. The Securities and Exchange Commission was not a party to the agreements. JPMorgan Chase said it is fully cooperating with a continuing SEC probe.
In recent weeks Citigroup Inc., UBS AG, and Merrill Lynch & Co. Inc. have all announced plans to buy back billions of dollars worth of the securities. Citigroup and UBS announced the buybacks as part of agreements with state and federal regulators.
On Monday, Mr. Cuomo's office sent letters to JPMorgan Chase, Morgan Stanley, and Wachovia urging them to enter into similar settlements.