Wachovia and Citigroup to Pay $618,000 Fine to Delaware for Sale of Auction Rate Securities
The Delaware Department of Justice announced today that it has reached
agreements with Wachovia Securities, LLC and Wachovia Capital Markets, LLC and Citigroup Global
Markets Inc. following an investigation into their marketing and sale of auction rate securities (ARS).
Each firm will pay a fine of more than $309,000 to the State of Delaware for misleading investors
about the safety of the ARS market. Fines collected from these investment firms will be paid to the
Delaware Investor Protection Fund.
In November 2008, following a multi-state investigation into the failure of the ARS market,
settlements were reached between state and federal securities regulators and eleven investment firms
who offered these products for sale. The firms agreed to repurchase more than $60 billion of auction
rate securities from investors nationwide and were required to notify investors of the repurchase offer.
In Delaware alone, Wachovia sold more than $60 million in auction rate securities and Citigroup sold
more than $92 million in auction rate securities.
“These agreements send a clear message to investment firms that we will hold them
accountable for misleading investors about the sale of these supposedly safe and liquid investment
products,” stated James Ropp, Delaware Securities Commissioner. “We encourage Delaware investors
to contact us at (302) 577-8424 if they have questions about the repurchase of Auction Rate Securities
by these or other investment firms.”
Auction rate securities, also referred to as ARPS, short term paper, 7 day paper, or floaters, are
long-term financial instruments with interest rates that are reset through weekly or monthly auctions.
When auctions run properly, investors who hold these securities can buy and sell them on a regular
basis. However, when there are not enough buyers for every ARS being offered for sale, auctions
“fail” and investors are forced to hold their ARS until the next successful auction. Since early 2008,
the majority of these auctions have failed and many investors have been unable to sell their frozen
In response to investor complaints, state-led investigations into possible violations of securities
laws in connection with the sale of ARS began in April 2008. The North American Securities
Administrators Association formed a multi-state Task Force, comprised of securities regulators in 12
states, to investigate whether Wall Street firms had systematically misled investors who purchased
these securities. The Delaware Department of Justice Securities Unit is a Task Force member.
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