Risk & Compliance

“Nobody Gets a Pass” in SEC ARS Probe

A tough-sounding Chairman Cox says that "over a dozen pending investigations" should result in action "very, very quickly."
Stephen TaubAugust 19, 2008

The Securities and Exchange Commission’s investigation into auction-rate securities abuses is ranging far beyond the five banks that have already agreed to buy back billions of dollars of ARS from customers, SEC Chairman Christopher Cox told reporters.

“We have over a dozen pending investigations under way,” Cox said in his remarks to the press, according to Reuters. And the probe extends to secondary dealers, he added, with no company “getting a pass.”

The five banks that have agreed to billion-dollar settlements so far are Wachovia, JPMorgan, Morgan Stanley, UBS, and Citigroup, all of which have admitted they sold auction rate securities as safe, cash-equivalent products, when in fact they faced increasing liquidity risk.

Cox told the reporters the SEC is “working very, very quickly” on its pending investigations, according to the news service, but he declined to say when another settlement will be announced.

Meanwhile, the wire service noted that the Regional Bond Dealers Association has been calling on regulators such as the SEC, the New York state attorney general, and other state authorities to expand their ARS settlements to include investors who bought the now-illiquid bonds.

Reuters said the association is asking that primary bond dealers repurchase the securities from any customer who bought them, regardless of which firm distributed the securities.