SEC, N.Y. AG Finalize ARS Settlements with Firms

WASHINGTON — Bank of America, Royal Bank of Canada's RBC Capital Markets and Deutsche Bank on Wednesday settled civil charges filed by the Securities and Exchange Commission and the New York Attorney General's office, which accused them of misleading investors of the risks associated with auction-rate securities.

Without admitting or denying the charges, the three firms will provide nearly $6.7 billion to 9,600 customers who invested in auction-rate securities before the market froze in February 2008.

These are the latest settlements in the SEC's wide-ranging auction securities case. Three other settlements were also completed with Wachovia, Citigroup and UBS AG. Meanwhile, the SEC announced a preliminary settlement with Merrill Lynch last August, but a final settlement hasn't yet been reached.

"Through these latest settlements and prior ARS settlements with other firms entered into by the commission, more than $50 billion in liquidity is being made available to tens of thousands of customers so they can get back all of the money they invested in auction rate securities," said Scott Friestad, Deputy Director of the SEC's Division of Enforcement.

Preliminary settlements with Bank of America and RBC were first announced in October last year, but Wednesday's announcement represented final agreements with the firms.

According to the SEC's complaint, which was filed in federal court in New York City, the three firms led investors to believe that auction rate securities were safe and liquid investments that were comparable to money markets.

They made these claims, the SEC alleged, while knowing that their ability to support auctions by purchasing more auction rate securities had been reduced with the stress of the growing credit crisis.

When the banks stopped supporting the auction-rate securities market in February last year, customers were left holding billions in illiquid auction-rate securities.

Under the terms of the settlements, which still await court approval, Bank of America customers will have $4.5 billion of liquidity restored. RBC customers, meanwhile, will have $800 million in liquidity restored and Deutsche Bank customers will have $1.3 billion in restored liquidity.

Each firm will offer to purchase auction-rate securities from individuals, charities and other businesses that purchased the securities even if those customers have since moved accounts.

They also must work to provide liquidity solutions for institutional investors and other customers. In addition, they must pay eligible customers who sold their auction-rate securities below par the difference between the sale price and par.

New York Attorney General Andrew Cuomo's office finalized deals with Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley. In total, 11 firms that the office has reached agreement with have bought back $61 billion of ARS from investors. Citigroup Inc. and UBS AG in December finalized their deals with both the SEC and Cuomo's office. All the companies still need to provide liquidity to the ARS market.

Cuomo said Wednesday his investigation into the sale of ARS by other companies continues.

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