ST. LOUIS (CN) – Wachovia will buy back $9 billion in auction rate securities, in a settlement announced by the SEC and Missouri Secretary of State Robin Carnahan. The settlement requires Wachovia to buy back all $9 billion of the auction rate securities it sold to investors, and pay a $50 million fine to be split among 50 states.
About $5.7 billion will be returned to individuals, investors and charities by Nov. 28, and other businesses with larger holdings can redeem the securities by June 2009. No-interest loans will be available immediately for investors who need liquidity before the buyouts are complete.
“Today’s settlement is a major step toward making these investors whole,” Carnahan said in a statement. “I have received hundreds of calls from Missourians and investors around the nation who need their money to make medical payments, run their businesses, or retire as planned.”
Wachovia is the fifth company to reach such a settlement. On Thursday, JPMorgan and Morgan Stanley agreed to buy a combined $7 billion is securities back from investors and to pay a combined $60 million in fines.
UBS AG and Citigroup reached settlements last week. The $330 billion auction rate securities market collapsed in February during a downturn of broader credit markets. The securities involved investors buying and selling instruments that resembled corporate debt, but the interest rates were reset at regular auctions. Many investors preferred them because they could treat their holdings almost the same as cash.
As in other recent ARS lawsuits, Wachovia sold ARS as cash alternatives before the market collapsed in February, when Wachovia and others stopped supporting the market, according to the SEC.