CHICAGO - Michigan regulators said they are in early talks with Comerica Securities over investors' losses in the auction-rate securities market, part of the ongoing multi-state probe into broker-dealers' ARS sales practices.
Michigan Attorney General Michael Cox Tuesday sent a letter to Comerica's Detroit-based senior vice president and chief executive officer Ross Rogers as the state's first step in recovering losses for Michigan investors who purchased auction-rate securities from the firm, said Cox spokesman Rusty Hills. Cox has been investigating ARS investment losses since May.
"Attorneys from our banking and securities divisions have been in contact with their counterparts at Comerica," Hills said. "I would characterize this as communications instead of negotiations."
In the letter, Cox asks Comerica to "show the kind of leadership we have come to expect from this respected company" and respond to the letter by Friday, Aug. 29. The letter requests a list of Comerica's ARS clients and their contact information.(Read the letter here)
Noting that several other ARS firms have negotiated settlements with regulators, Cox wrote: "Because Comerica is a Michigan-based company with a history of being a responsible corporate citizen in this state, we trust it will discharge a similar duty to its investors in ARS ... without the necessity of state or federal regulatory action."
Comerica Inc. was a longtime Detroit-based bank that moved its headquarters to Dallas in 2007.
Wendy Walker, a spokeswoman at Dallas-based ComericaInc., said only that the firm was "not in negotiations with Attorney General Cox's office with respect to the ARS matter."
Comerica Securities does not rank among the top 10 senior managers for auction-rate securities in the last five years, according to Thomson Reuters.
Michigan's move is the latest in a series of state-led investigations into broker-dealers selling auction-rate securities since the collapse of the estimated $300 billion market beginning in February. Since July, the coalition has reached a series of settlements with eight broker-dealers. Together the firms have agreed to buy back at par more than $70 billion of auction-rate debt.
Michigan regulators are asking local retail investors with illiquid ARS to contact the Office of Financial and Insurance Regulation in an effort to determine the volume of losses sustained throughout the state.
Cox's office said the state has received "numerous" complaints from investors that they were misled into thinking their investments were liquid. Nationally, about 430 investors have complained about illiquid auction-rate securities, most lodging their complaints with the North American Securities Administrators Association.
"Our goal is to make investors whole, and to ensure that they get the funds they invested in auction-rate securities," Hills said. "Based on what's happened in other states, there's no reason to believe that won't be forthcoming here."
Hills said Michigan wants to achieve a settlement with Comerica that is similar to other recent settlements. Under most of the agreements, firms have agreed to buy back at par all auction-rate securities from retail investors. Many firms have also agreed to provide "liquidity solutions" to institutional investors, and some firms, like Wachovia Securities LLC, have agreed to buy back ARS from all their customers, including institutions.
Also as part of the agreements, most firms have agreed to reimburse the costs of issuance to municipal issuers who sold auction-rate debt from August 2007 - when the market began to show signs of turmoil - through mid-March of this year. Many broker-dealers have also agreed to pay fines, which states will ultimately distribute among themselves depending on which states have the largest amount of ARS investors.
Since July eight firms have reached so-called agreements-in-principle with state regulators. The firms are: Merrill Lynch & Co., Goldman, Sachs & Co., Deutsche Bank, UBS AG, Citigroup Global Markets Inc., JPMorgan Chase & Co., Morgan Stanley, and Wachovia Capital Markets.
Several firms have also settled with the Securities and Exchange Commission. None of the firms admit or deny wrongdoing in any of the settlements.
Other states continue to investigate as-yet unnamed firms, including Georgia,Washington, and New Hampshire.