More big news for the auction rates market…
Wachovia brings home about $ 9 billion of frozen auction-rate securities…
AG Cuomo amps up pressure on Merrill Lynch …
~~ “Wachovia Corp., the fourth-largest U.S. bank, agreed to buy back $9 billion of frozen auction-rate securities and pay a $50 million fine to settle state and federal claims that it misled investors about the debt.
Wachovia will repurchase the securities, including $5.7 billion from individuals, charities and small businesses, under a settlement with a group of states led by Missouri and the U.S Securities and Exchange Commission. The accord follows similar settlements from banks including UBS AG and Citigroup Inc. and brings to more than $50 billion the amount of buybacks offered.
“Today’s agreement in principle underscores our desire to ensure that clients who purchased ARS at Wachovia receive the liquidity they need,” Wachovia Chief Executive Robert Steel said in a statement. The Wachovia accord covers more than 40,000 investors, Missouri Secretary of State Robin Carnahan said in a statement.” ~~
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Further from BBG: ~~ ” Merrill Lynch & Co. faces an “imminent” lawsuit from New York State Attorney General Andrew Cuomo, who said the brokerage’s offer to buy back $10 billion of auction-rate securities doesn’t adequately protect investors.
“We have not been able to reach satisfactory terms,” Cuomo said today while discussing a settlement in a similar case with Wachovia Corp. “I want them to do it my way.”
Merrill said Aug. 7 that it would buy back about $10 billion in frozen auction-rate securities at face value, starting in January. Cuomo said at the time that he was evaluating New York- based Merrill’s proposal.
Merrill has drawn Cuomo’s ire for refusing to reach settlements similar to those he has negotiated with Citigroup Inc., UBS AG and JPMorgan Chase & Co. Cuomo said today that Merrill’s buyback proposal doesn’t “really protect investors.” Earlier this week, he criticized a similar voluntary plan by Morgan Stanley before announcing a settlement with that firm.
“Some institutions have `voluntarily’ announced plans,” Cuomo said. “I don’t think voluntary is the appropriate word when customers were clamoring for this.” ~~ ”
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From the Securities and Exchange Commission…
Wachovia Agrees to Preliminary Auction Rate Securities Settlement That Would Offer Approximately $9 Billion to Investors
FOR IMMEDIATE RELEASE 2008-176
Washington, D.C., Aug. 15, 2008 — The Securities and Exchange Commission’s Division of Enforcement today announced that investors, small businesses, and charities who purchased auction rate securities (ARS) through Wachovia Securities, LLC and Wachovia Capital Markets, LLC (collectively Wachovia) could receive up to $9 billion to fully restore their losses and liquidity through a preliminary settlement that has been reached with Wachovia.
The proposed charges stem from alleged misrepresentations made by Wachovia to thousands of its customers about the liquidity risk associated with ARS. Specifically, Wachovia marketed ARS to investors as cash alternatives, and represented that it would provide one-day or same-day liquidity by purchasing customers’ ARS. However, Wachovia failed to adequately disclose that the liquidity of these securities was premised on Wachovia providing support bids for auctions it managed when there was not enough customer demand, and that its offer to provide one-day liquidity could be withdrawn at any time. When Wachovia stopped supporting auctions in February 2008, there were widespread auction failures and Wachovia stopped making good on its offer to provide one-day liquidity.
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