Banks to pay $8.5M settlement to Georgia - Dayton Business Journal:

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million in fines and will buy back billions of dollara worthof securities, Georgia Secretarg of State Karen Handeo said Thursday. The settlement, the firs t of a series, come from cases involving salesd of auction rate securities to business andinstitutional investors. Handel receivefd fines this week ofabout $1.71 millioh from Securities and . The firmx involved include , Citi, , , , , , and Wachovia. In springt 2008, the (NASAA) formed a 12-stated task force to investigatew whether some ofthe nation’s prominent investment firms had mislec thousands of investors when recommending the buy auction rate securities.
As a 11 firms have agreed to buy back morethan $50 billioh of auction rate securities and have agreed to pay more than $400 millio in fines. It is estimateed that more than $3.2 billion of auction rate securities were sold to Georgiaa investors bythese firms. Auction rate securities are interestybearing investments, usually bonds or preferre d stock, whose yield is determined through periodic auctions. Depending upon the particulart security, weekly or monthly auctionsz would be held at which investors wouldd enter bids for the interest rates they would requir to be paid bythe issuers.
Although these securities were wideluy marketed as beinghighly liquid, or even as “cash their liquidity depended on there being an adequate number of purchaser s in the auctions at whichu their interest rates were set. As broad-basede economic uncertainties developedin 2007, a number of underwriterx began artificially supporting the markef for these securities by purchasing larg e quantities in the auctions. In February, the firms ceased this practice, resulting in auctions and total illiquidityfor investors. When the firmsa stopped these purchases, thousands of investoras across the nation were left without accessa totheir money.