Morgan Stanley and JPMorgan Chase & Co. agreed to pay fines and buy back auction-rate securities that state regulators said were fraudulently sold to investors.
The New York-based banks, among the largest underwriters of the securities, will pay fines totaling $60 million and redeem at face value more than $7 billion of auction-rate debt sold to individuals, charities and small businesses under a settlement with New York Attorney General Andrew Cuomo and a group of other state regulators, according to terms announced yesterday.
The agreements are the latest arising from a nationwide investigation of how auction-rate securities were marketed before the $330 billion market collapsed in February. Investors purchased the debt on the advice of bankers who pitched it as a cash equivalent, regulators said, only to find they couldn't sell the bonds as demand dried up.
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