Cuomo, Coakley continue charge against auction rate securities sellers

By John O'Brien | Aug 7, 2008



NEW YORK (Legal Newsline) - New York Attorney General Andrew Cuomo announced Thursday, along with federal regulators, that Citigroup will buy back more than $7 billion sold in auction rate securities.

Citigroup must also pay $100 million in civil penalties as part of the agreement, reached less than a week after Cuomo announced his intention to sue the company for allegedly misrepresenting the liquidity of the securities, which have their interest rates reset periodically by auctions.

Massachusetts Attorney General Martha Coakley made $1.5-million announcement of her own Thursday, revealing an agreement with Morgan Stanley, but the big news belonged to Cuomo.

"Today's settlement sends a resounding message to the entire auction rate securities industry: This type of deceptive behavior will not be tolerated and we will actively seek justice on behalf of investors in auction rate securities," Cuomo said.

"Our goal is simple: To get investors back their money. And that's exactly what this deal does."

Cuomo sought relief for investors harmed when the auction rate securities market stumbled earlier this year. Swiss bank UBS, Morgan Stanley and Merrill Lynch, like Citigroup, have been targets.

Citigroup has until Nov. 5 to buy all illiquid auction rate securities from customers, charities and small to mid-size businesses. Cuomo said Citigroup has approximately 40,000 customers nationwide who have been unable to sell their securities since Feb. 12.

Citigroup admitted no wrongdoing. The company has fallen on hard times recently, posting a total loss of $17.4 billion in the last three quarters.

The Securities and Exchange Commission said Citigroup must attempt to liquidate all $12 billion worth of auction rate securities the company sold to retirement plans and other institutions by the end of 2009.

Cuomo's office will receive $50 million in civil penalties, while the North American Securities Administrators Association will receive another $50 million. NASAA's task force had its own investigation, led by the Texas State Securities Board, of Citigroup.

Coakley, meanwhile, said Morgan Stanley will give $1.5 million back in investment monies to the City of New Bedford and the Town of Hopkinton.

Cuomo has already reached a similar pact with UBS, which agreed to return more than $35 million to Massachusetts municipal governments.

From Legal Newsline: Reach John O'Brien by e-mail at

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