Bank of America Merrill Lynch will pay New Jersey $4.87 million and repurchase auction-rate securities sold to investors in a settlement agreement over alleged misinformation regarding the floating-rate securities.

New Jersey, along with 11 other states, filed suit against Merrill Lynch & Co. in 2008, claiming the bank failed to disclose certain investment risks related to auction-rate securities.

Under a consent order, the firm will pay $4.87 million in civil penalties to New Jersey's Bureau of Securities. That amount is the state's pro-rata share of a settlement negotiated by a multi-state panel of state regulators formed by the North American Securities Administrators Association. In addition, the firm must buy back certain ARS from New Jersey investors.

"This settlement with the Bureau of Securities holds Merrill Lynch accountable for how it marketed auction-rate securities without fully revealing the risks to investors," New Jersey Attorney General Paula T. Dow said in a prepared statement.

The ARS market froze in the first quarter of 2008, leaving investors holding the securities in an illiquid market. Many states have argued that investment firms did not adequately inform investors of the risks associated with ARS.

In addition, Bank of America Merrill Lynch will repay refinancing fees to local governments who issued ARS and then later refinanced the securities in order to get out of the volatile ARS market.

"Merrill Lynch shall refund refinancing fees to municipal auction-rate issuers that issued such eligible ARS in the initial primary market through Merrill Lynch between Aug. 1, 2007, and Feb. 13, 2008, and refinanced those securities through Merrill Lynch after Feb. 13, 2008," the consent order reads.

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