Reuters – Securities regulators are locking horns with some of the U.S.’s most powerful mutual funds and Wall Street players over plans to scrap requirements that money market funds hold investment-grade securities.

For years, the Securities and Exchange Commission allowed fund firms to buy only highly rated municipal bonds for money market funds but now the SEC is considering changing that rule in an effort to curb investors’ reliance on credit ratings.

Ironically, players like The Vanguard Group, one of the biggest in the $12.3 trillion (7 trillion pounds) mutual fund industry, want less freedom instead of more, arguing the SEC-mandated ratings offer would-be investors a sense of comfort.

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New York (HedgeCo.Net) – Less than one week after UBS and Citigroup were called upon to buy back over $30 billion in bad auction-rate securities, New York Attorney General Andrew Cuomo is forcing JPMorgan, Morgan Stanley and Wachovia to follow suit.

In a letter to the three banks, Chief of the Attorney General’s Investor Protection Bureau David Markowitz wrote, “Our investigation’s focus is shifting to the next group of market participants. Any resolution would need to address the same concerns addressed in the previous settlements.”

UBS was slapped with $150 million in fines and is being forced to buy back some $18.6 billion worth of the auction-rate securities. These securities, backed by municipal bonds and other debts, were sold under the assumption they were a safe investment. Instead, the $330 market collapsed in February, leaving investors and now the government, wondering if the banks were up front about the potentially high risks associated with such investments.

The probe launched by Cuomo will investigate 18 different banks. He is insisting that banks create auction-rate securities buyback programs for the customers who got stuck selling their securities far below par.

Citigroup also got slapped with a $100 million fine and had to deal with both state regulators and the Securities and Exchange Commission. They eventually agreed to buyback $7.3 billion worth of the securities from individual customers and small businesses. In addition, they must help over 2,500 clients sell about $12 billion of the securities.

Morgan Stanley has agreed to buy back $4.5 billion worth of the securities at par.  According to the Wall Street Journal, Morgan Stanley will repurchase the securities beginning no later than September 30, from all charities and small to mid-size companies with accounts of $10 million or less that were purchased before February 13th of this year.

Merrill Lynch, in an attempt to quell the probe before it starts, offered last week to buy back about $10 billion in the auction-rate securities. However, Cuomo’s office stated that their plan didn’t contain certain “investor protection safeguards.” The Merrill case is currently under review in Cuomo’s office.

 
Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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New York (HedgeCo.Net) – Merrill Lynch and Citigroup, two banks that have already written down billions in losses, will buy back $30 billion in auction-rate securities as part of an agreement with regulators. 

This comes after the threat made by New York Attorney General Andrew Cuomo, who said he would sue Citi for misleading trusting investors about the high risks associated with such securities. 

Merrill then followed suit, and other big names firms like Morgan Stanley and Bank of America are expected to strike their own deals with state regulators and the SEC in the near future.

These securities, which accounted for nearly $350 billion, are backed by municipal bonds and other forms of debt, and were peddled as being “safe.”  However, the credit crunch blindsided most banks, and those securities were quick to plummet in value. 

Citi has to shell out the most cash, agreeing to purchase $7.5 billion in securities and promised to purchase another $12 billion from institutional investors.  On top of it all, they were slapped with $100 million in fines.  Merrill has agreed to buy back $10 billion in the auction-rate securities.    

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com

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