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 |  Subject: Mercantilists, Merrill, Goldman, Deutsche Settle Auction-Rate Probes  Thu Aug 21, 2008 9:55 pm | |
| - Merrill Lynch & Co., Goldman Sachs Group Inc. and Deutsche Bank AG agreed to buy back as much as $15 billion in failed auction-rate securities and pay $160 million in fines, settling probes by state regulators.
The accords bring to eight the number of firms that settled claims in the last two weeks that they misled investors by fraudulently marketing the long-term securities as easy to buy and sell. Merrill, among the biggest underwriters of the debt, will redeem up to $12 billion and pay fines of $125 million, the second-largest penalty to date from the probes.
``It's been a great day of progress,'' said New York Attorney General Andrew Cuomo, who announced the agreements this afternoon. Merrill Chief Executive Officer John Thain, who took part in talks that led to today's agreement, knew his firm had to ``step up to the plate,'' Cuomo said.
Wall Street banks are settling claims stemming from a nationwide investigation into allegations banks peddled auction- rate securities as investments that were as liquid as cash. The $330 billion market seized up in February, when the credit crisis prompted banks to stop supporting the periodic auctions at which the long-term securities were bought and sold.
Goldman will buy back $1.5 billion of the securities and pay a $22.5 million fine, Cuomo said. Deutsche Bank will redeem $1 billion of debt and was fined $15 million. Merrill, which offered on Aug. 7 to buy back $10 billion of debt starting in January, will now start buying it in October.
Resolution
``We are pleased our clients have the certainty of a favorable resolution to this unprecedented liquidity crisis,'' Thain, 53, said in a statement. Merrill said in a statement that it had also settled with the Securities and Exchange Commission.
Deutsche Bank is ``pleased to resolve this matter,'' said spokesman Ted Meyer.
In a statement today, Goldman Sachs estimated it would buy back about $1 billion in securities. The firm said it is cooperating with an SEC investigation.
North Dakota Securities Commissioner Karen Tyler, who as president of the North American Securities Administrators Association represents all the states, said the agreements were a ``global deal'' for U.S. investors. Massachusetts Secretary of State William Galvin, who sued Merrill last month, announced a separate settlement with similar terms earlier today.
UBS, Citigroup
UBS AG, Citigroup Inc. and three other Wall Street banks already agreed to repurchase almost $35 billion of auction-rate debt from individuals, charities and small businesses, accounting for about 17 percent of the estimated $200 billion left in the market. The agreements today contained similar terms, giving priority to so-called retail investors, with the banks pledging to also help institutional clients find markets for their bonds, Cuomo said.
The first five banks, joined by Morgan Stanley, JPMorgan Chase & Co. and Wachovia Corp., will pay $360 million in fines, with UBS agreeing to a $150 million penalty, the largest to date. Bank of America Corp. is among the last major banks with which regulators haven't yet reached an accord.
``We announced three settlements today,'' Cuomo, 50, said in response to a question about Bank of America. ``You think we can get everything done in a day?''
Regional brokerages such as Charles Schwab Corp., Fidelity Investments and E*Trade Financial Corp. are also being targeted by authorities for their role as middlemen in selling debt created by the banks. Cuomo also said he is also investigating individuals at the banks, without specifying the banks or number of people.
On-Site Inspections
U.S. regulators will start on-site inspections next week of about 40 brokerages involved in sales of auction-rate debt, stepping up a nationwide inquiry into whether the firms failed to warn clients the market was collapsing, a person familiar with the matter said yesterday.
The Financial Industry Regulatory Authority wrote to the firms this month seeking spreadsheets on bids submitted for the products, copies of training and marketing materials and risk analyses and the results of internal investigations, the person said. It would also like to know whether phone lines on auction- rate trading desks were recorded.
``That they are showing up in offices shows the seriousness of their purpose here,'' said Brian Rubin, a partner at Sutherland Asbill & Brennan LLP in Washington who represents brokerages. ``Normally, they just expect the firms to produce the documents or information by mail, which can take a while. Here they seem to be in a hurry.''
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