ST. LOUIS
The "nightmare" is over for thousands of investors whose money was tied up in auction-rate securities bought through Wachovia Corp., the secretary of state of Missouri, Robin Carnahan, said yesterday in announcing an $8.5 billion settlement with Wachovia.
Wachovia, along with state and federal regulators, announced a settlement that calls for the bank to buy back $8.5 billion in auction-rate securities. Carnahan's office was the lead negotiator.
Wachovia also agreed to pay $50 million in fines to be distributed among all 50 states.
Carnahan said that since the collapse of the auction-rate securities market in February, investors needing to access their money for retirement, medical bills and other debts have been unable to do so, even though Wachovia brokers peddled the securities as "cash equivalents, like a money market."
"This nightmare is finished so they can get on with their lives," Carnahan said.
Wachovia is the fifth bank to agree to buy back the troubled securities over the past two weeks, following Citigroup Inc., UBS AG, JPMorgan Chase & Co. and Morgan Stanley.
Auction-rate securities were investments that resembled corporate debt, but their interest rates were reset at regular auctions. The market for the securities collapsed in February amid deterioration in the broader credit markets.
In July, securities regulators from Missouri and several other states went to Wachovia's St. Louis offices and requested documents and records related to auction-rate securities. St. Louis is where Wachovia has its as headquarters for its securities division.
The investigation was civil only. Carnahan would not speculate on the possibility of criminal charges.
The settlement involves more than 40,000 investors nationwide. Carnahan wasn't certain how many Missourians were affected but said that her office has gotten hundreds of calls from Wachovia customers, and 70 filed formal complaints.
Carnahan said the $5.7 billion in investments held by individuals, charities and small businesses will be returned by Nov. 28. The rest, held by larger firms, will be returned by June 30, she said.
Dan Gregus, the assistant regulatory director for the Securities and Exchange Commission office in Chicago, wouldn't speculate on additional fines. "Right now, our primary interest is getting money back to investors as quickly as possible," he said.
Wachovia admitted no wrongdoing in agreeing to the settlement.
Robert K. Steel, the president and chief executive officer of Wachovia, said that "unprecedented" market conditions created difficulties for Wachovia's clients, particularly those holding auction-rate securities.
"We are pleased to announce a comprehensive solution for the liquidity needs of clients who purchased auction-rate securities at Wachovia and to resolve this matter with federal and state regulators," Steel said in a news release.
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