dbmaxx
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#1 · Posted: 7 Aug 2008 12:01
Citigroup settles auction-rate probes, pays fine
NEW YORK (Reuters) - Citigroup Inc agreed to buy back more than $7 billion of illiquid auction-rate securities and pay a $100 million civil fine to settle charges it marketed the debt fraudulently.
New York Attorney General Andrew Cuomo and the U.S. Securities and Exchange Commission announced the settlement with the largest U.S. bank by assets.
Citigroup agreed to buy back all illiquid auction-rate securities at face value from all retail customers, charities and small- to mid-sized businesses -- a total of some 40,000 customers nationwide -- by November 5.
The bank also agreed to fully reimburse all investors who sold their auction-rate debt at a loss. It will pay a $50 million penalty to New York and another $50 million to the North American Securities Administrators Association.
"This is not just a Wall Street issue, this is a Main Street issue," Cuomo said at a press conference. He said the settlement "will help restore confidence in this market" and added, "It does justice for consumers."
Cuomo said he is investigating other companies' auction-rate securities sales practices.
Auction-rate securities have interest rates that reset periodically. The $330 billion market was once considered safe, but much of it remains frozen after a February meltdown in which Wall Street brokerages stopped supporting the debt.
Citigroup said in a statement that it was pleased to settle. It said it has made "tremendous progress" adding liquidity for holders of illiquid auction-rate securities, and has redeemed or auctioned at face value more than half of its retail clients' holdings in the securities since the crisis began.
The bank did not admit wrongdoing in agreeing to settle. It estimated the size of the buyback at $7.3 billion.
Cuomo had threatened to charge Citigroup with fraudulently marketing and selling auction-rate securities and destroying documents that had been subpoenaed. His office had accused Citigroup of wrongly telling customers that auction-rate debt was safe, liquid and the equivalent of cash.
Separately, Massachusetts' attorney general said Morgan Stanley has agreed to pay $1.5 million to reimburse two cities that invested in auction-rate securities.
Citigroup's settlement could be a template for settlements by other companies that face civil charges over auction-rate debt. Regulators have accused Merrill Lynch & Co and Swiss bank UBS AG of fraud over the securities.
Citigroup was the largest underwriter of auction-rate debt in all but one year this decade, Thomson Financial data show.
Shares of Citigroup fell 80 cents, or 4 percent, to $18.90 in morning trading on the New York Stock Exchange. Morgan Stanley shares were down 18 cents to $43.00.
(Reporting by Grant McCool and Jonathan Stempel; Additional reporting by Dan Wilchins in New York, Scott Malone in Boston and Rachelle Younglai in Washington; editing by John Wallace)
Copyright 2008 Reuters
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