CHESSNOID

Today, the banks wanted to give investors back money because they were sued by different state attorney generals for fraud or misrepresentation. The banks don’t want to admit any wrongdoing and have basically settled by paying their way out.

Citigroup to Buy $7.5 Billion of Auction-Rate Debt, Pay $100 Million Fine

Citigroup neither admitted nor denied allegations of wrongdoing.

“We are committed to continuing the many initiatives that we believe will provide liquidity to our auction-rate clients,” said Arthur Tildesley, chief administrative officer for Citigroup’s wealth-management division.

Citigroup estimated that securities eligible for the buyback have a face value of $7.3 billion and may be worth about $500 million less on the market than their purchase price. Under accounting rules, Citigroup may have to record a pre-tax loss to reflect the difference. The actual loss “will depend on the market value at that time and the amount of securities purchased,” the bank said in the statement.

The capital impact on its balance sheet will be “de minimis,” it said.

Merrill to Buy Back About $10 Billion in Client’s Auction-Rate Securities

Merrill will pay face value for the securities, according to a statement today from the New York-based firm. The buybacks will begin in January and continue for a year. The investments have been frozen in customer accounts since Wall Street firms backed away from the market in February, leading to claims by customers and investigations by the U.S. Securities and Exchange Commission and regulators in New York and Massachusetts.

“Our clients have been caught in an unprecedented liquidity crisis,” Chief Executive Officer John Thain said in the statement. “We are solving it by giving them the option of selling their positions to us.”

Regulators have been probing how banks and Wall Street firms sold auction-rate securities before the $330 billion market collapsed in February. Citigroup, the biggest U.S. bank by assets, earlier today reached an agreement with state and federal regulators to buy back about $7.5 billion in securities from its brokerage clients.

Regulators in Massachusetts filed a civil complaint against Merrill last week, claiming the firm and its analysts pitched the securities to investors as the market was collapsing.

UBS AG Settles Lawsuit Over Auction Rate Securities For $ 4.4 Million

On Wednesday, July 30th, 2008, the Swiss bank UBS AG has agreed to settle a lawsuit brought by the Massachusetts attorney general Martha Coakley in Suffolk Superior Court over auction rate securities and agreed to pay $4.4 million. The Swiss bank agreed to pay Massachusetts $1 million ($750,000 to cover expenses of the lawsuit and $250,000 to local governments impacted)

Believe it or not these all go back to the mortgage crisis. The banks have already taken a big hit with their write downs (which I believe there is more to come) and now they have to pay back some of the money they defrauded investors by selling those mortgage related securities. Even after some of those mortgage lenders had closed or been bought out by another bank, those in charge are still being pursued. In another article I read: Bank of America Says SEC Investigating Countrywide

Countrywide responded to the subpoenas, according to a regulatory filing today. Bank of America bought Countrywide last month to become the largest U.S. mortgage lender. Charlotte, North Carolina-based Bank of America, the nation’s second-largest bank, said it also received subpoenas regarding sales of auction- rate securities and municipal derivatives.

The SEC investigation probably relates to whether former Countrywide Chief Executive Officer Angelo Mozilo sold shares before disclosing information about the company’s finances, said David Lykken, co-founder of Mortgage Banking Solutions, an Austin, Texas-based consulting firm. “That has been a glaring issue in front of everybody,” said Lykken.

Mozilo, who left Countrywide upon Bank of America’s purchase, has denied wrongdoing. He exercised stock options that produced $121.5 million in gains in 2007 while Countrywide stock fell almost 80 percent. Mozilo, who co-founded the company, said in April that he was giving up $36.4 million in severance pay he could have received from the Bank of America sale.

I think all these regulatory agencies like the SEC and the Attorney Generals failed to do their job to begin with and are just trying to improve their image. This is more just an attempt to look good in the public to at least  show they are trying to do something after the fact.