Citigroup to Give NJ Auction Rate Securities Investors Refunds
Consumersaffairs.com announced on May 21, 2009, that New Jersey investors who put their money in Auction Rate Securities from Citigroup, only to see the investments plummet during 2008, are scheduled to get their money back.
The New Jersey Attorney General’s Office endorsed a final Consent Order that requires Citigroup Global Markets Inc. to complete or confirm its repurchase of Auction Rate Securities to settle allegations that the firm’s securities dealers failed to disclose risks of the Auction Rate Securities market.
Under this settlement, 2,873 individual New Jersey investors as defined in the Consent Order are eligible to have $623.5 million in Auction Rate Securities repurchased.
“Citigroup’s New Jersey investors whose Auction Rate Securities investments were frozen during last year’s meltdown will now have free access to their funds, under terms of this settlement,” said New Jersey Attorney General Anne Milgram. “Our Bureau of Securities worked with other state regulators to protect investors and safeguard their monies.”
Although marketed and sold to investors as safe, liquid, and cash-like investments, Auction Rate Securities are actually long-term investments subject to a complex auction process that failed in early 2008, revealing illiquidity and lower interest rates than investors were promised.
“Our Bureau of Securities teamed up with other state regulators in a task force that combined and coordinated investigative resources,” said David Szuchman, New Jersey’s Consumer Affairs Director. “New Jersey will continue to be a leader in protecting its investors.”
“From the first failed Auction Rate Securities, the Bureau of Securities has sought to secure much needed relief for investors stuck with these unsuitable and illiquid products,” said Marc B. Minor, New Jersey Bureau of Securities chief.
“I am pleased that Citigroup has agreed to do what’s right by offering to repurchase clients’ positions, and I expect other firms that sold these securities in New Jersey to do the same.”
Auction Rate Securities settlements with other investment firms are currently being negotiated, Minor noted.
The order also requires Citigroup to pay a $3,300,932.67 civil penalty to the state. This amount represents the state’s pro-rata share of a settlement negotiated by a multi-state task force of state regulators formed by the North American Securities Administrators Association.
During the investigation, regulators discovered that Citigroup’s securities dealers failed to adequately inform customers and train employees on the risks associated with buying auction-rate securities.
The investigation into Citigroup’s role in the marketing of auction rate securities is part of a larger state-led effort to address problems in connection with Auction Rate Securities investments.
Early in 2008, state offices began receiving complaints from investors throughout the country. As a result, in April, 12 states, including New Jersey, formed a task force to investigate whether the nation’s prominent Wall Street firms had systematically misled investors when placing them in auction rate securities.
