Citigroup Pays $3.3M to New Jersey Bureau of Securities
to Settle Auction Rate Securities Case
NEWARK – The Office of the Attorney General through its Bureau of Securities today signed a final Consent Order that requires Citigroup Global Markets Inc. to complete or confirm its repurchase of auction-rate securities (ARS) from New Jersey clients to settle allegations that the firm’s securities dealers failed to disclose risks of the ARS market.
Under this settlement, 2,873 individual investors in New Jersey as defined in the Consent Order are eligible to have $623.5 million in ARS repurchased.
“Citigroup’s New Jersey investors whose ARS investments were frozen during last year’s meltdown will now have free access to their funds, under terms of this settlement,” Attorney General Anne Milgram said. “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, ARSs 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, Consumer Affairs Director. “New Jersey will continue to be a leader in protecting its investors.”
“From the first failed ARS, 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.”
ARS 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 New Jersey. 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 (NASAA).
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 ARS 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.
The Consent Order announced today sets forth the allegations by the BOS and the terms that were agreed to in principle in August, 2008.
BOS Investigating Attorney Peter C. Cole led New Jersey’s efforts in securing this settlement and protecting Garden State investors.
The Bureau of Securities can be contacted toll-free within New Jersey at 1-877-I-INVEST (1-877-446-8378) or from outside New Jersey at 973-504-3600. The Bureau's web site is located at http://www.njsecurities.gov.