Anne Milgram, Attorney General
Division of Consumer Affairs
David Szuchman, Director
For Immediate Release:
August 7, 2008
For Further Information Contact:
Jeff Lamm, 973-504-6327
Consumer Information:


N.J. Bureau of Securities Participates in Settlement With Citigroup;
Investors to Recover Billions in Auction Rate Securities

NEWARK — New Jersey Attorney General Anne Milgram announced today that the N.J. Bureau of Securities, as part of a national task force with other state regulators, and the Securities and Exchange Commission reached a settlement with Citigroup, Inc., which will give thousands of Citigroup clients, including New Jersey investors, access to billions of dollars in funds that have been frozen in the auction rate securities (ARS) market.

The settlement concludes an investigation of Citigroup led by the Texas State Securities Board into allegations that Citigroup misled its clients by falsely assuring them that ARS securities were as safe and liquid as cash. The N.J. Bureau of Securities played a significant role in supporting the Texas regulators by investigating specific complaints originating from New Jersey investors and taking an active role in the settlement negotiations.

New Jersey BOS Chief of Enforcement Richard Barry played a pivotal role in this coordinated investigation through his leadership of the BOS investigation, as well through his active personal participation in negotiating the terms of the settlement agreement. At a press conference in Manhattan earlier today, New York State Attorney Andrew Cuomo and North American Securities Administrators Association (NASAA) President Karen Tyler each specifically recognized Mr. Barry's contribution to this significant outcome on behalf of the investing public.

The ARS markets froze in February this year, triggering a flood of complaints from investors who could not withdraw money from their accounts. States, including New Jersey, received complaints from a wide range of investors who suffered significant financial damage because the money they were told was liquid was tied up in the frozen ARS market.

Under the terms of the settlement announced today by state and federal regulators, Citigroup will offer to repurchase at par, no later than November 5, 2008, all auction rate securities from all Citigroup retail customers, including those from New Jersey, who held those securities at the time the auction market failed on February 12, 2008. For purposes of the settlement, retail customers are defined to include individual investors, all businesses with account values of up to $10 million, and all charities regardless of account values.

Citigroup will also:

  • Reimburse all retail investors, including those from New Jersey, who sold their auction rate securities at a discount after the market failed;
  • Consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by retail investors who were unable to access their funds, in which Citigroup will concede liability related to its sale of auction rate securities;
  • Undertake to expeditiously provide liquidity solutions to all other institutional investors; and
  • Reimburse all refinancing fees to any state municipal issuers who issued auction rate securities through Citigroup between August 1, 2007 and February 11, 2008, and who refinanced those securities after February 11, 2008.

In addition, Citigroup will pay a $50 million penalty to the States, with a pro-rata share payable to New Jersey, as well as an additional $50 million penalty to New York State. The penalties reflect issues arising from Citigroup's sale of auction rate securities to investors as well as Citigroup's destruction of records required to be maintained under state law.

"New Jersey's participation in this national investigation reflects its continued commitment to protect New Jersey investors, and the settlement provides necessary relief to investors who were mislead into believing that their auction rate security investments were liquid and as safe as cash" said Attorney General Milgram.

Consumer Affairs Division Director David Szuchman stated that, "This settlement with Citigroup resulted from a well-coordinated national effort that New Jersey proudly participated in to obtain compensation on behalf of New Jersey investor victims."

"The resolution today represents a major step in the Bureau's efforts with other state regulators to obtain much needed relief for investors whose auction rate securities were frozen and their value impaired. The tireless efforts of the Bureau's Enforcement Chief Rick Barry were noteworthy and contributed mightily to the favorable outcome achieved" said Bureau Chief Vincent J. Oliva.

The investigation into possible violations by Citigroup is part of a larger state-led effort to address problems in connection with the offer and sale of ARS securities. Earlier this year, state offices began receiving hundreds of complaints from Main Street investors. As a result, in April, NASAA announced the formation of a multi-state Task Force, comprised of securities regulators in 12 states, including New Jersey, to investigate whether the nation's prominent Wall Street firms had systematically misled investors when placing them in ARS securities.

The members of the Task Force and the New Jersey BOS are continuing their investigations into possible misconduct by other firms. To date, enforcement actions alleging fraud and other violations in connection with ARS securities have been filed by Massachusetts, New York, and Texas against UBS. In addition, Massachusetts has filed an action against Merrill Lynch.


Contact Us | Privacy Notice | Legal Statement | Accessibility Statement
division: dca home | complaint forms | licensing boards | adoptions | proposals | minutes | consumer protection
departmental: lps home | contact us | news | about us | FAQs | library | employment | programs and units | services a-z
statewide: nj home | my new jersey | people | business | government | departments | search
Page last modified:
New Jersey Home My New Jersey People Business Government Departments