Another Settlement In The Auction Rate Securities Market

New York Attorney General Andrew Cuomo and the NASAA multi-state ARS Task Force announced the resolution of another investigation in the auction rates securities market. This settlement is with Wachovia Capital Markets.

The agreement announced Friday, following the template of earlier settlements in this market discussed here, focuses on a return of investor capital keyed to retail customers while establishing procedures to resolve other issues. Specifically, under the agreement announced Friday, Wachovia undertook to repurchase all ARS from its retail customers, charities and small businesses by November 28, 2008. The company also agreed to pay damages to investors who sold securities for a loss. Other key terms of the settlement included:

• An undertaking to fully reimburse retail investors who sold ARS at a discount after the market failed;

• A consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by retail investors who could not access their funds;

• An undertaking to expeditiously provide liquidity solutions to all other institutional investors;

• Reimbursement of all refinancing fees to any New York State municipal issuer who issued ARS throughout Wachovia since August 1, 2007; and

• A consent to the entry of a permanent injunction with the SEC prohibiting future violations of Exchange Act Section 15(c).

Wachovia also agreed to pay civil penalties in the amount of $50 million which will be distributed pro rata by states’ investment dollars totals. The SEC has deferred any penalty at the moment.

The settlement resulted from investigations by the New York Attorney General, the NASAA multi-state ARS Task Force, the SEC and FINRA. The Attorney General of Missouri took the lead in this investigation.