HELENA – Montana investors who lost millions in auction rate securities will get their money back from Citigroup Global Markets under a settlement announced Tuesday by state Auditor and Securities Commissioner Monica Lindeen.
The Montana settlement is part of a national agreement announced earlier by the Securities and Exchange Commission. Citigroup Global Markets agreed to give individual investors, small businesses and charities all $7.5 billion of their money back from auction-rate securities they bought from the firm before the market for the securities froze in February 2008.
Lindeen says Citigroup Global Markets will provide $9.5 million to Montana investors and also paid a $121,513 fine that will be deposited to the state’s general fund.
Lindeen’s office announced a similar settlement last week with Wachovia Securities LLC and Wachovia Capital Markets LLC.
“My office will continue to aggressively investigate whether other broker-dealers and individuals have failed to disclose to investors material risks about ARS that they marketed and sold,” Lindeen said in a press release. “We also look forward to finalizing at least ten more settlements with additional brokerage firms regarding ARS securities in the upcoming months.”
The Citigroup settlement resolves a multistate investigation into allegations that Citi misled investors regarding the liquidity risks associated with auction rate securities (ARS) that they underwrote, marketed and sold. According to complaints received from investors throughout the country, Citi misrepresented to customers that ARS were safe, highly liquid investments that were comparable to money markets.
In late 2007 and early 2008, investors alleged Citi knew that the ARS market was deteriorating and began purchasing additional inventory to prevent failed auctions.Investors complained that by February 2008, Citi stop supporting the ARS market, leaving its customers throughout the country holding billions of dollars in illiquid ARS.
Auction-rate securities are preferred shares or debt instruments such as corporate or municipal bonds. They have a long-term maturity and are sold at monthly or weekly auctions, and until recently were treated by many investors as cash investments. However, the auction-rate security market collapsed, bringing auctions to a halt and leaving investors illiquid investments.
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