In addition to Citigroup, other banks including UBS, JPMorgan have agreed to cut deals with state and federal regulators and resolve investigations into the alleged mishandling of auction rate securities sales. Now it seems that Bank of America may be following suit.
On Sept. 3, 2008 Massachusetts Secretary of State William Galvin said Bank of America, the nation’s second-largest bank, must either reach an agreement with state regulators or be prepared to face legal action. On Sept. 4, 2008 New York Attorney General Andrew Cuomo followed up on Galvin’s edict, serving subpoenas to eight Bank of America executives as part of his six-month investigation on how Wall Street’s biggest banks sold auction rate securities to investors.
So far, eight Wall Street heavyweights - UBS, Morgan Stanley, Citigroup, JPMorgan Chase, Wachovia, Merrill Lynch, Goldman Sachs and Deutsche Bank - have agreed to settle claims that they marketed auction rate securities as cash-like alternatives to investors. In addition to buying back nearly $50 billion of the securities from retail investors, the banks also must pay fines totaling more than $500 million to state and federal regulators.
However, the New York attorney general says any settlements agreed to thus far do not cover any possible misconduct by individual brokers. Meanwhile, two former Credit Suisse Group AG brokers were formally charged with violating securities laws and fraudulently selling subprime mortgages connected to auction rate securities to corporate clients.
Following the New York attorney general’s statement, Bloomberg.com on September 5, 2008 reported that Julian Tzolov and Eric Butler were charged on for falsely representing various securities to investors as backed by federally guaranteed student loans and safe alternatives to cash or money market funds.
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