The state of Pennsylvania ordered Citigroup Inc. to pay hundreds of millions of dollars to buy back auction-rate securities from thousands of investors in the state in the wake of the collapse of the market for the securities at the beginning of 2008.
Dozens of states have reached settlements with the nation's largest financial institutions, including Citigroup, in the past year to resolve charges they misled investors about the liquidity risks of the auction-rate securities they underwrote.
Tuesday's order also requires Citigroup to pay $2.3 million to the state for its role in the market.
Auction-rate securities are debt instruments whose interest rates are meant to be reset periodically at daily, weekly or monthly auctions. But as those auctions began failing in February 2008, interest rates rose while investors were locked into long-term investments that had been promoted as safe and liquid.
The Pennsylvania Securities Commission estimated more than 1,200 retail investors and 167 institutional investors in the state held auction-rate securities from Citigroup as of January 2008, before the market collapse. Under the commission's order, Citigroup must offer to repurchase the securities from the retail investors but not the institutional or professional investors.
The state is continuing its investigation of other financial firms.
A Citigroup spokesman couldn't immediately be reached for comment.