Missouri Secretary of State Robin Carnahan announced on Thursday that the state has reached a finalized auction-rate securities settlement with two Bank of America subsidiaries and is continuing an investigation of ARS sales practices at Stifel Nicolaus & Co.
The settlement involves Bank of America Securities LLC and Bank of America Investment Services Inc., which completed a repurchase program for $400 million of ARS from Missouri investors earlier this year. Bank of America will also pay $1.4 million to the Missouri Investor Education and Protection Fund.
Bank of America reached a settlement in principle with state and federal regulators in October to buy back $4.7 billion of ARS at par. Regulators alleged that Bank of America and other companies misled investors about the risks associated with ARS. The $330 billion ARS market collapsed in February 2008, leaving investors unable to liquidate their securities.
Regulators have also alleged that ARS primary dealers were supporting auctions without informing investors in the months leading up to the market's collapse by bidding on their own securities. The Missouri consent order alleges that Bank of America Securities bid on its auctions with "the effect of artificially propping up the market and creating the illusion that the auction rate market was functioning as normal."
Bank of America will redeem ARS from businesses with accounts up to $15 million and from charities with accounts up to $25 million that bought the securities before Feb. 13, 2008. The program will remain open to investors until Dec. 1, 2009, a spokesperson for the company said Friday.
Bank of American Corp. reported that it has purchased $4.3 billion of ARS from customers as of March 31, according to company filings. The company had an outstanding buyback commitment of $1.3 billion in the first quarter, mostly associated to buyback agreements made by Merrill Lynch & Co. Bank of America acquired Merrill Lynch in September.
The company held $15.7 billion of ARS at the end of the first quarter and recorded losses of $73 million on the ARS, primarily related to municipal bonds and auction-rate preferred securities, the company said.
Carnahan filed a civil enforcement action in March against Stifel Nicolaus alleging that the company sold ARS to customers as cash-like securities. Stifel's chief executive officer and chairman Ronald J. Kruszewski said at the time that his company was not "primarily a distributor" of ARS.
"Neither Stifel nor its clients had access to information available ... regarding the impeding collapse of the ARS market," Kruszewski said in a March 12 statement.
Carnahan said on Thursday that Stifel customers "should not have to wait over three years for relief that so many other firms have already provided to their clients immediately."
A Stifel spokesperson did not return a call for comment.
Stifel also faces regulatory action from the Virginia Division of Securities and Retail Financing, Carnahan said. She said she expects to finalize other ARS settlements with additional firms over the next few months.
