Morgan Stanley, JPMorgan to settle auction-rate cases
Morgan Stanley and JPMorgan Chase & Co agreed to pay fines and buy back auction-rate securities that state regulators said were fraudulently sold to investors.
By Agencies |
NEW YORK: Morgan Stanley and JPMorgan Chase & Co agreed to pay fines and buy back auction-rate securities that state regulators said were fraudulently sold to investors. The New York-based banks, among the largest underwriters of the securities, will pay fines totaling $60 million and redeem at face value more than $7 billion of auction-rate debt sold to individuals, charities and small businesses under a settlement with New York Attorney General Andrew Cuomo and a group of other state regulators, according to terms announced on Thursday.
The agreements are the latest arising from a nationwide investigation of how auction-rate securities were marketed before the $330 billion market collapsed in February. Investors purchased the debt on the advice of bankers who pitched it as a cash equivalent, regulators said, only to find they couldn���t sell the bonds as demand dried up.
���I believe we���ve crossed the Rubicon and established the premise: the investors will be helped,��� Cuomo said at a press conference in New York announcing the settlements. ���The nightmare will end and they will be made whole.���
UBS AG and Citigroup Inc. last week agreed to buy about $26 billion of the debt and pay fines of a combined $250 million. Merrill Lynch & Co also voluntarily offered to repurchase about $10 billion of the securities, a type of long-term debt whose interest costs are set through auctions run by dealers every week or month.
Morgan Stanley, which last week said it would buy back about $4.5 billion of the securities, and JPMorgan neither admitted nor denied wrongdoing.
���We���re pleased to have settled this matter,��� said Mark Lake, a spokesman for Morgan Stanley in New York. Joseph Evangelisti, a spokesman for JPMorgan, declined to comment past the firm���s press release announcing the accord. The two banks also agreed to help their larger institutional clients - those with more than $10 million in assets - sell their auction-rate holdings, Cuomo said. The attorney general said his office would monitor the banks��� efforts to help institutions liquidate the securities.
���We made great progress over the weekend,��� Egerdal said today about negotiations that a multistate task force is conducting with Wachovia. ���There are a few more things to work out. They are still in discussions.���
Wachovia retail clients held $8.7 billion in auction-rate securities on August 1, the firm said in an August 11 filing.
The agreements are the latest arising from a nationwide investigation of how auction-rate securities were marketed before the $330 billion market collapsed in February. Investors purchased the debt on the advice of bankers who pitched it as a cash equivalent, regulators said, only to find they couldn���t sell the bonds as demand dried up.
���I believe we���ve crossed the Rubicon and established the premise: the investors will be helped,��� Cuomo said at a press conference in New York announcing the settlements. ���The nightmare will end and they will be made whole.���
UBS AG and Citigroup Inc. last week agreed to buy about $26 billion of the debt and pay fines of a combined $250 million. Merrill Lynch & Co also voluntarily offered to repurchase about $10 billion of the securities, a type of long-term debt whose interest costs are set through auctions run by dealers every week or month.
Morgan Stanley, which last week said it would buy back about $4.5 billion of the securities, and JPMorgan neither admitted nor denied wrongdoing.
���We���re pleased to have settled this matter,��� said Mark Lake, a spokesman for Morgan Stanley in New York. Joseph Evangelisti, a spokesman for JPMorgan, declined to comment past the firm���s press release announcing the accord. The two banks also agreed to help their larger institutional clients - those with more than $10 million in assets - sell their auction-rate holdings, Cuomo said. The attorney general said his office would monitor the banks��� efforts to help institutions liquidate the securities.
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JPMorgan in an Aug. 11 filing said its customers hold about $5 billion worth of auction rate securities, which includes $3 billion in the hands of retail customers. Wachovia Corp, the fourth-largest US bank, also is nearing a deal, said Laura Egerdal, a spokeswoman for Missouri Secretary of State Robin Carnahan, who is in the negotiations. ���We made great progress over the weekend,��� Egerdal said today about negotiations that a multistate task force is conducting with Wachovia. ���There are a few more things to work out. They are still in discussions.���
Wachovia retail clients held $8.7 billion in auction-rate securities on August 1, the firm said in an August 11 filing.
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