Bank of America Corp., Royal Bank of Canada's RBC Capital Markets and Deutsche Bank AG settled civil charges filed by the Securities and Exchange Commission and the New York Attorney General's Office, which accused them of misleading investors about the risks associated with auction-rate securities.
Without admitting or denying the charges, the three companies agreed Wednesday to provide nearly $6.7 billion to 9,600 customers who invested in the securities before the market froze in February 2008.
Wachovia Corp., Citigroup Inc. and UBS AG had already agreed to settlements in the SEC's wide-ranging case. The agency announced a preliminary settlement with Merrill Lynch & Co. in August, but a final settlement has not been reached.
Preliminary settlements with B of A and RBC Capital Markets were announced in October.
According to the SEC's complaint, which was filed in the U.S. District Court for the Southern District of New York, B of A, RBC Capital Markets and Deutsche Bank led investors to believe that the securities were safe and liquid investments comparable to money markets.
The companies made these claims while knowing that the stress of the growing credit crisis had made it harder to support auctions by purchasing more auction-rate securities, the SEC alleged.
When the companies stopped supporting the auction-rate securities market in February of last year, customers were left holding billions in illiquid securities.
Under the settlements, which still need court approval, B of A customers would have $4.5 billion of liquidity restored. RBC Capital Markets customers would have $800 million of liquidity restored, and Deutsche Bank customers would have $1.3 billion of liquidity restored. Each firm would offer to purchase securities from individuals, charities and other businesses that purchased them, even if the customers have since moved accounts.
The companies also must work to provide liquidity help for institutional investors and other customers. In addition, the companies must pay eligible customers who sold their 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 have reached agreements with the office have bought back $61 billion of securities from investors. Citi and UBS finalized their deals with both the SEC and Cuomo's office in December. All the companies need to provide liquidity to the auction-rate securities market.
Cuomo said Wednesday that his investigation into securities sales by other companies continues.