Capital Markets

New York AG Sends Letters to Three Banks

The repurchase of billions of dollars worth of auction-rate securities has not stopped the probe into banks behavior.
Stephen TaubAugust 12, 2008

New York Attorney General Andrew M. Cuomo is turning up the heat on some of the largest banks in an apparent effort to convince them to voluntarily agree to work out amends with the customers of auction rate securities.

On Monday, his office announced that it is expanding its investigation into the ARS scandal and has sent letters to JPMorgan Chase, Morgan Stanley and Wachovia alerting the banks that his office will look into the firms’ behavior “pertaining to misrepresenting auction rate securities to investors as safe, cash-equivalent products, when in fact they faced increasing liquidity risk.”

Also on Monday, Morgan Stanley informed Cuomo’s office, as well as the Securities and Exchange Commission and other regulators that it would buy back $4.5 billion worth of ARS to pay back investors. The securities are being held in Morgan Stanley retail accounts and were purchased through the bank prior to February 13, 2008.

In the letters, Cuomo pointed out that last week his office secured agreements with UBS and Citigroup that will return over $20 billion to investors throughout the country. “It would be unfair to consumers with accounts at other firms, and well as to the firms that settled, if our investigation were to slow down or stop,” said David A. Markowitz, chief, Investor Protection Bureau, in the letter. “We would like to enter into immediate talks about resolving the investigation, as that would be in the best interests of both consumers nationwide,” as well as the individual bank that received the letter, he added.

Markowitz added that his office coordinated prior efforts with regulators, “and if possible, would be amenable to doing so again.”