The state auction-rate securities regulators task force continued to pursue financial institutions involved in the auction-rate securities market aggressively. To date, state regulators have subpoenaed approximately 30 financial institutions over their auction-rate securities practices and continue to pursue investigations with all firms that have yet to settle. The states have already tentatively settled auction-rate securities claims against Citigroup and UBS. Moreover, the state task force has identified Morgan Stanley, JP Morgan Chase and Wachovia Securities as current targets of its investigation. In addition, Goldman Sachs, Bank of America, Wells Fargo, Lehman Brothers, RBC Capital Markets, and Raymond James are reported to be additional targets of the state investigations.
Recent reports indicate that the state task force is seeking regulatory settlements from each firm similar to those entered into by Citigroup and UBS. Under such arrangements, the brokerage firms would be required to repurchase all auction-rate securities that remain held by their retail customers (identified as individual investors, charitable organizations and small businesses having accounts of $10 million or less), reimburse such retail clients for any losses that they sustained by selling their auction-rate securities, set up a claims resolution process to address any unusual damages sustained by retail customers, and pay appropriate regulatory fines.
Under these precedents, the one group that has been largely unprotected is larger corporate, pension and other institutional clients who are essentially being left to fend for themselves. Under announced arrangements, the Wall Street banks are only undertaking to use their “best efforts” to assist such institutions in achieving liquidity for auction-rate securities that they still hold. Since there are no formal requirements on the Wall Street banks to satisfy the claims of institutional investors, such investors are being left to pursue their own remedies to recover damages, if any, that they have sustained.
Posted In:
Auction Rate Securities
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Bank of America
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Brokerage Firms
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Citigroup/Smith Barney
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Goldman Sachs
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J. P. Morgan Chase
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Lehman Brothers
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Merrill Lynch
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Morgan Stanley
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RBC Dain Raucher
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Raymond James
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Regulatory Developments
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UBS
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Wachovia
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