Brokerage firms reach auction rate securities agreement with regulators

[JURIST] Three of the largest brokerage firms in the US reached a settlement [press release] with the New York Attorney General's office [official website] and securities regulators representing 48 states on Thursday, agreeing to pay $10 billion to investors who purchased auction rate securities. The agreement is the result of an effort to settle claims that Merrill Lynch, Goldman Sachs, and Deutsche Bank [corporate websites] had misled investors about the safety of auction rate securities during marketing and sales of the investments. According to New York Attorney General Andrew Cuomo [official profile], the banking firms will buy back all such securities held by retail investors, a group including all individuals, charities, non-profits, and small to medium size businesses. Commenting on the agreement, Cuomo said:

Today is a win for investors and a win for the market, and to date we’ve returned close to $50 billions back into the pockets of investors... At the heart of this investigation, is improving confidence for the investor and for the market, and today we’ve taken another giant step forward towards fulfilling this goal.
The settlement also requires the banks to make payments to any investors who sold the securities for a loss, and require them to pay penalties in the amounts of $125 million for Merill Lynch, $22.5 million for Goldman Sachs, and $15 million for Deutsche Bank. This particular settlement is part of a larger investigation [press release] into 30 different firms which sold approximately $60 million in auction rate securities to retail investors. The Wall Street Journal has more. The New York Sun has additional coverage.

In 2006 Merill Lynch agreed [JURIST report] to pay $164 million to settle 23 class action lawsuits involving Merrill Lynch's research of online companies in the 1990s. Also in 2006, four former Merrill Lynch executives found guilty of charges connected with an Enron [corporate website; JURIST news archive] Nigerian barge scam, had their convictions overturned [opinion text, PDF; JURIST report] by the Fifth Circuit [official website]. Experts believe that due to the success of the former Merrill Lynch executives, the appeal [JURIST report] of former Enron CEO Jeffrey Skilling [Houston Chronicle profile] has a good chance of success. Skilling was convicted under the theory of "deprivation of honest services," which allows for the prosecution of those who enabled fraud but did not personally benefit from it.

 

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