Galvin reaches settlement with Bank of America

Massachusetts Secretary of State William F. Galvin (right) said today that a nation-wide settlement in principle has been reached between Banc of America Investment Services Inc. and Banc of America Securities LLC (“Bank of America”) concerning auction rate securities, or ARS.

“With this settlement, thousands of Bank of America clients will be provided with access to billions of dollars in funds that have been frozen in the ARS market.” Galvin said in a statement.

In a telephone interview, Galvin said that the bank will buy back $4.8 billion of the securities from individuals, small businesses, and nonprofit customers starting Oct. 1. The bank said it would make "best efforts" to reimburse larger institutional customers beyond that.

The settlement will resolve the Massachusetts Securities Division’s investigation of Bank of America with regard to its marketing and sales of auction rate securities, said Galvin's office, which includes the Securities Division.

Bank of America issued a press release in which it neither admits nor denies allegations of wrongdoing. Please click here to read the bank's press release.

Galvin's office said in a press release: "Under the terms of the agreement, Bank of America will offer to buy back beginning October 1, 2008 and continuing through until December 31, 2008, all illiquid ARS, at par value, from all Bank of America retail customers nationwide. The offer shall be extended to also include all small business customers who have up to $10 million on deposit, all ARS of all charitable entity customers who have up to $25 million on deposit. In addition, Bank of America had previously agreed to buy back all ARS held by government entities, including municipalities."

Galvin's press release also said: "Bank of America stopped supporting its auction program in February this year, triggering a flood of complaints from investors who were shocked to find that they could not withdraw money from their accounts. The investigation found that Bank of America clients were unaware of the increasing risk of collapse of the ARS market and that Bank of America continued to sell ARS securities to its clients as safe, liquid, money-market like instruments notwithstanding the risk."

To read earlier Globe coverage about Galvin and auction rate securities, please click here.
(By Chris Reidy and Beth Healy, Globe staff. File photo of Galvin: Dominic Chavez, Globe staff)