Banks Are Lining Up To Cut Auction-Rate Securities Deals
Thursday, August 14, 2008PAUL KANGAS: More relief could be on the way for investors in auction-rate securities. This evening, Associated Press is reporting that Wachovia is close to a settlement with New York State Attorney General Andrew Cuomo over the sale of those securities. The investments were touted as safe as cash, but they weren't. This morning, Cuomo announced a settlement with JPMorgan Chase and Morgan on the issue. Those two banks will return over $7 billion to investors nationwide. The firms will also pay a combined $60 million in civil penalties. Erika Miller has details.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: New York Attorney General Andrew Cuomo says today's settlements are a victory for investors tricked into buying auction-rate securities. But he says the impact is much larger.
ANDREW CUOMO, NEW YORK ATTORNEY GENERAL: I also believe these resolutions help the entire marketplace. Why? Because the bottom line for the marketplace is investor confidence. People have to believe in the market. They have to believe in the system that administers the securities.
MILLER: However, critics say today's deals fall short. For example, they apply only to retail customers, charities and small and mid-sized businesses. So it is unclear how much, if anything, larger firms and institutional investors stand to recover.
CUOMO: The banks will be using their best efforts to buy out the institutional investors. We will continue to monitor those efforts and if we believe those best efforts are not achieving the fair and just goal, then we can take action.
MILLER: Securities attorney Jake Zamansky is also disappointed the deals do not address consequential damages.
JACOB ZAMANSKY, SECURITIES ATTORNEY, ZAMANSKY & ASSOCIATES: A number of people have come to me. They were going to buy a home. All their money was tied up in auction-rate securities. They had to lose that transaction. There are businesses that have suffered. They couldn't make payroll. They couldn't get involved in transactions.
MILLER: Today's announcement brings the total value of auction-rate securities settlements to $30 billion. A week ago, Cuomo inked agreements with Citigroup and UBS. And Merrill Lynch has announced a voluntary buy back plan of its own. However, none of the banks have admitted wrongdoing and nobody has been charged with a crime.
ZAMANSKY: There also needs to be individuals brought to justice. There were a lot of people at these banks who lied to investors, who corrupted research, Merrill Lynch as an example and they need to be held accountable.
MILLER: New York Attorney General Cuomo says his investigation is continuing. Although he would not provide specifics, he did say his office is in discussions will all the leading securities firms simultaneously. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
KANGAS: To clarify, those deals with Cuomo were with JPMorgan and Morgan Stanley.
