NYS FINES STREET TITANS
Add a few more big-name firms to the growing list of investment banks settling with New York Attorney General Andrew Cuomo.
Yesterday, JPMorgan Chase and Morgan Stanley agreed to shell out $60 million in fines and buy back a total of $7 billion worth of illiquid auction-rate securities that were pitched to investors as being highly liquid until the credit crisis hit.
JPMorgan’s settlement covers the repurchase of about $3 billion in so-called auction-rate securities and a $25 million fine. Morgan Stanley received a $35 million fine and agreed to buy back about $4.5 billion in securities.
In a statement, JPMorgan said that its repurchase would entail “small-to-medium-sized businesses with account values and household values of no more than $10 million.”
The pact also includes buying back auction-rate securities issued by Bear Stearns prior to Feb. 11. JPMorgan bought out Bear in a Federal Reserve-led deal in June.
Neither firm admitted to any wrongdoing as part of their settlements.
A spokesman at JPMorgan declined to comment beyond the bank’s press release. A Morgan Stanley spokesman did not return a call.
Once a booming market, with $330 billion in assets, the auction-rate securities market seized up nearly a year ago as the credit crunch took hold and created a massive logjam that has yet to be resolved.
These short-term securities, which offer interest payments that reset as often as once every week, were attractive for wealthy investors and corporations because they offered a liquid market and an alluring interest rate, until things collapsed.
Morgan Stanley and JPMorgan are the latest in a string of banks that have opted to pay big fines rather than get into a nasty tango with hard-charging regulators.
State regulators led by Cuomo, in conjunction with the Securities and Exchange Commission, have forced big banks to repurchase $46 billion in hard-to-sell auction-rate securities.
Last week, Citigroup agreed to buy back $7 billion in securities and help investors sell an additional $12 billion. UBS said it would buy back $18.6 billion in hard-to-sell securities. Both are also paying a combined $250 million in fines.
Elsewhere, UBS was accused by New Hampshire securities regulators of defrauding the state’s leading issuer of student loans.
In a civil complaint, the Bureau of Securities Regulation said that even as UBS was directing clients out of auction-rate products as the market collapsed, it was advising the New Hampshire Higher Education Loan Corp. to stay in.
