WASHINGTON — Texas Securities Commissioner Denise Voigt Crawford late Tuesday announced a final settlement with Banc of America Securities LLC and Banc of America Investment Services Inc., in which the firms agreed to pay $3.626 million for misleading retail investors about the lack of liquidity of auction-rate securities.
Under the settlements, the firms also agreed to complete the repurchase of any outstanding ARS from Texas investors. A total of $1.16 billion was once held by these investors. It is not clear how much of that has already been repurchased.
The final settlement, formally known as a final consent order, states that Banc of America knew of increasing risks in the auction process but continued to market ARS “without advising retail customers of any of the potential risks associated with a failed auction or market illiquidity.”
Robert Elder, a spokesman for the securities board, said that its retail-related ARS investigations are complete, but declined to say if the board is investigating the manner in which ARS’ were sold to other classes of investors.
The case against the two firms is the third ARS legal proceeding that the state securities board has finalized. In March, the board finalized a consent order that required Wachovia Securities, now part of Wells Fargo, to buy back ARS and pay a fine of $3.982 million.
In December, the board finalized a consent order that required Citigroup Global Markets Inc., to repurchase billions in ARS from Texas investors and pay a fine of $3.592 million.
Following the ARS market’s collapse last year, state and federal regulators received a flood of complaints from retail and other investors. Twelve states, including Texas, formed a task force in April 2008 to investigate whether the nation’s prominent Wall Street firms had systematically misled investors when selling in auction-rate securities.
The Securities and Exchange Commission, the Financial Industry Regulatory Authority, New York State Attorney General Andrew Cuomo, and others, also conducted probes and brought enforcement actions against firms.
Meanwhile, Cuomo announced “Assurances of Discontinuance” with Credit Suisse Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Inc. elating to the auction-rate securities settlements reached last summer. The assurances detail how the firms have and will continue to provide liquidity to investors who purchased auction-rate securities.