WASHINGTON - Citigroup will buy back more than $7 billion in auction-rate securities and pay $100 million in fines as part of settlements with federal and state regulators, who said the bank marketed the investments as safe despite liquidity risks.
Citigroup will buy back the securities from tens of thousands of investors nationwide under separate accords announced Thursday with the Securities and Exchange Commission, New York Attorney General Andrew Cuomo and other state regulators.
The buybacks from nearly 40,000 individual investors, small businesses and charities are not expected to cause significant losses for Citigroup; they must be completed by November.
Similar steps to buy back auction rate securities from customers are expected to be taken by other financial institutions. Bank of America Corp. revealed that it has received subpoenas and requests for information about its sale of the investments.
Merrill Lynch & Co. said it will offer to buy back an estimated $12 billion in auction rate securities, though the company has already been actively reducing that amount.
Citi, the nation’s largest financial institution, said also will pay $50 million each in civil penalties to New York state and the North American Securities Administrators Association, which represents securities regulators in the 50 states and the District of Columbia.
The SEC also will consider levying a fine on Citigroup, the agency’s enforcement director Linda Thomsen, said.
New York-based Citigroup agreed to reimburse investors who sold their auction-rate securities at a loss after the market for them collapsed in mid-February.
Also under the SEC accord,
Citigroup agreed to make its best efforts to liquidate by the end of next year all of the roughly $12 billion of auction-rate securities it sold to retirement plans and other institutional investors.
The $330 billion auction-rate securities market involved investors buying and selling instruments that resembled regular corporate debt, except the interest rates were reset at regular auctions — some as frequently as once a week.