New York Attorney General Andrew Cuomo said Monday he is expanding his investigation into the collapse of the auction-rate securities market...
NEW YORK — New York Attorney General Andrew Cuomo said Monday he is expanding his investigation into the collapse of the auction-rate securities market to include JPMorgan Chase, Morgan Stanley and Wachovia.
Last week, Cuomo’s office and the Securities and Exchange Commission reached settlements that forced Swiss bank UBS to repurchase $18.6 billion in the securities, while Citigroup agreed to buy back $7 billion of the securities.
UBS will also pay a fine of $150 million, while Citigroup will pay a $100 million fine.
Most Read Business Stories
- FAA safety engineer goes public to slam the agency's oversight of Boeing's 737 MAX
- MacKenzie Scott marries Seattle teacher after Bezos divorce
- 55,000 in Washington state may have to pay back thousands in jobless benefits
- Microsoft’s $10 billion Pentagon deal at risk amid Amazon fight
- 1 house, 45 offers: Homebuyers in Western Washington hard-pressed as supply remains scarce
Cuomo sent letters to JPMorgan, Morgan Stanley and Wachovia telling them his office is reviewing the banks’ behavior in the sale of auction-rate securities.
He will determine if the banks knowingly misrepresented the safety of the securities when selling them to investors.
Morgan Stanley spokesman Mark Lake said the New York investment bank has “been and continues to cooperate fully with the regulators and [has] been working with clients since February to provide liquidity on a case-by-case basis.”
A Wachovia spokeswoman said the Charlotte, N.C., bank is meeting with regulators. In the bank’s quarterly filing with the SEC, Wachovia said it was actively engaged in settlement discussions with various state regulators and the SEC, including the likelihood of liquidity solutions.
JPMorgan declined to comment. But the bank said Monday in its quarterly regulatory filing with the SEC that it is cooperating with the investigations, and that it is the subject of two class-action lawsuits and individual arbitrations and lawsuits relating to its sales of the securities.
The $330 billion auction-rate securities market involved investors buying and selling instruments that resembled corporate debt, except the interest rates were reset at regular auctions, some as frequently as once a week.
A number of companies and retail clients invested in the securities because they could treat their holdings almost like cash.
The bondlike investments were seen as highly liquid, money-marketlike investments.
However the market for them collapsed in February amid the downturn in the broader credit markets.
Regulators have been investigating the collapse to determine who was responsible.
UBS and Citigroup agreed to repurchase the securities at par value as part of the settlement.
Any customers who sold the securities at a loss after the market failed will also be reimbursed.
State participates in investigation
Since March, the Washington state Department of Financial Institutions (DFI) has participated in a task force on auction-rate securities sponsored by the North American Securities Administrators Association, said Suzanne Sarason of the department’s Securities Division.
The DFI is lead investigator of one firm, which she declined to identify, and is probing other auction-rate securities activity within the state.
To date, she said, DFI has received about 40 complaints related to the securities, involving 11 different companies and about $48 million in investments.
The problem almost certainly is bigger than that, she said: “There’s probably not one person in 100 who’s complained.”
— Seattle Times business reporter Drew DeSilver