N.Y. Attorney General Probes Marketing of Auction-Rate Securities

Securities Law

N.Y. Attorney General Probes Marketing of Auction-Rate Securities

Posted Apr 18, 2008, 06:28 am CDT
By Debra Cassens Weiss

New York Attorney General Andrew Cuomo has subpoenaed information from 18 financial institutions about their sale and marketing of auction-rate securities.

Cuomo wants to know what the Wall Street firms told consumers who bought the securities about the safety and liquidity of the investments, the Wall Street Journal reports. He is also is probing what the banks told municipalities and other sellers that issued the securities about interest rates.

Demand for the securities waned in February, leaving investors with instruments they couldn’t sell and forcing sellers of the securities to pay higher interest rates. A weekly or monthly bidding process is used to reset interest rates for the securities. In the past, Wall Street firms submitted their own bids when there weren’t enough bidders, but they stopped doing that as they faced their own liquidity problems caused by the credit crisis.

Cuomo also wants to know how the banks decided to stop bidding on the securities, Bloomberg News reports.

Firms receiving subpoenas included UBS AG, Citigroup Inc., Merrill Lynch & Co., JPMorgan Chase & Co. and Goldman Sachs Group Inc., a source told the Wall Street Journal. Massachusetts has subpoenaed information from UBS, Merrill Lynch and Bank of America.

Securities regulators in nine other states are also conducting an investigation. Many financial firms are also facing lawsuits related to the securities.

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