Auction-Rate Update

"J.P. Morgan Chase & Co. and Morgan Stanley agreed to buy back more than $7 billion in auction-rate securities as part of an agreement to end probes by regulators into how they marketed the complex securities. At a news conference, New York Attorney General Andrew Cuomo siad J.P. Morgan would pay $25 million in civil penalties while $35 million in penalties will be paid by Morgan Stanley", WSJ, 15 August 2008.

"Wachovia Corp. is buying back as much as $8.8 billion in auction-rate securites, but the decision should have minimal impact on the Charlotte, N.C., bank as it works its way through the more-serious headaches relating to the U.S. mortgage rout, analysts said Friday. ... Wachovia, which neither admitted nor denied wrongdoing, also will pay $50 million in civil penalties", WSJ, 16 August 2008.

"The New York attorney general's office turned up the heat Wednesday on financial firms that sold auction-rate securities and haven't settled with regulators. Attorney General Andrew Cuomo's office is stepping up its probe of three banks Bank of America Corp., Goldman Sachs Group Inc. and Deutche Bank AG, which underwote and sold the securities, issued by municipalities and others. ... In the widened probe targeting the three firms, Mr. Cuomo's office has been gathering more documents, conducting witness interviews and assigning more lawyers to investigate the companies' auction-rate operations. Settlement discussions with the firms and with other regulators investigating these firms have also ramped up, people in the office say", WSJ, 21 August 2008.

"Andrew Cuomo and a group of regulators representing 48 other states have come to settlement agreements with Goldman Sachs Group Inc., Deutsche Bank AG [DB] and Merrill Lynch & Co. [ML] over the sales and marketing of auction-rate securities. Goldman agreed to buy back $1.5 billion of retail investors' auction-rate securities by Nov. 12. The firm will also pay a $22.5 million penalty to the states. [DB] consented to buy back $1 billion of its retail clients' auction-rate securities within 90 days and pay a $15 million penalty to the regulators. ... The [SEC] has been involved in the negotiations with these firms and said it expects to make an announcement regarding [ML] soon", WSJ, 22 August 2008.

"[ML] and the [SEC] reached a preliminary settlement under which the Wall Street firm would buy back at least $7 billion of auction-rate securities it sold to customers. ... '[ML] did not make adequate disclosures that the liquidity of these securities was based on [ML] supporting the auctions it managed when there was not enough demand. Investors were left holding illiquid securities when [ML] stopped supporting auctions in February 2008,' the SEC said", WSJ, 23 August 2008.

It would be nice if someone at these banks was indicted for something.

"Say it ain't so, Joe", said the 7-year old to "Shoeless Joe Jackson" after the 1919 Blacksox scandal. Even Goldman Sachs. I'm heartbroken.

$22.5 million for GS? Peanuts. It's 33% of Lloyd Blankfein's 2007 bonus!

Will anyone at ML go to prison over this? Why ask?