New York prods firms to settle auction-rate securities probe

SEEKING RESOLUTIONS Attorney General Andrew Cuomo is urging banks to create buyback programs for retail customers and start a claims resolution mechanism.

NEW YORK - New York Attorney General Andrew Cuomo sought to accelerate the investigation of auction-rate securities sales, asking JPMorgan Chase & Co., Morgan Stanley, and Wachovia Corp. to begin "immediate" settlement talks.

Cuomo's office sent letters to the banks yesterday. Last week, Citigroup Inc. and UBS AG agreed to settlements in a nationwide inquiry into whether banks stuck clients with the hard-to-sell bonds before the $330 billion market collapsed in February. Cuomo's probe involves at least 18 different banks.

"Our investigation's focus is shifting to the next group of market participants," wrote David Markowitz, chief of the attorney general's investor protection bureau, in his letters to the three banks. "Any resolution would need to address the same concerns addressed in the" previous settlements.

Also yesterday Morgan Stanley, the second-biggest US securities firm by market value, offered to buy back about $4.5 billion in auction-rate securities from retail clients.

The New York firm will begin to repurchase notes at par value no later than Sept. 30, Morgan Stanley said in a statement on Business Wire.

Cuomo's office said Morgan Stanley's offer was insufficient. "This is too little, too late, and our investigation into Morgan Stanley continues," Alex Detrick, a spokesman for Cuomo, said in an e-mail.

Auction-rate securities are typically bonds whose interest rates are reset by periodic bidding. Investors were left unable to redeem securities that were billed as equivalent to cash after the dealers that ran the bidding in February suddenly stopped supporting the market as they had for years.

Cuomo is demanding that banks create auction-rate securities buyback programs for retail customers, reimburse consumers forced to sell off their securities at "below par" prices, and institute a claims resolution mechanism.

UBS, Switzerland's biggest bank, is to pay $150 million in fines and begin buying back $18.6 billion in failed auction-rate securities, the largest settlement in the investigation.

The bank will buy $8.3 billion of the securities from its clients beginning Oct. 31 under a settlement with the Securities and Exchange Commission and a group of states, including Massachusetts, according to terms disclosed Aug. 8.

New York-based Citigroup settled state and federal claims in the auction-rate probe, agreeing to buy back $7.3 billion in securities from individual customers, charities, and small businesses, pay $100 million in fines, and help 2,600 institutional customers unload $12 billion of securities.

Wachovia spokeswoman Christy Phillips Brown said her bank was meeting with regulators yesterday. Brian Marchiony, a JPMorgan spokesman, said his bank also is cooperating.