ARS settlements reached with Citi and UBS

The Securities and Exchange Commission finalized settlements today with Citigroup Inc. and UBS AG that will provide nearly $30 billion to tens of thousands of customers who invested in auction rate securities before the market for these investment products dried up in February. The announced settlement, which is still subject to court approval, calls for New York-based Citigroup to repurchase roughly $7 billion in ARS from its investor clients and for Zurich, Switzerland-based UBS to buy back $22.7 billion from its customers. In early August, the SEC’s Division of Enforcement announced preliminary settlements with Citigroup and UBS that addressed charges that the firms misled investors in regard to the liquidity risks of ARS, which they underwrote, marketed and sold as safe, highly liquid securities, when they in fact were deteriorating. According to the SEC complaint, in mid-February, Citigroup and UBS decided to stop supporting the ARS market, which left tens of thousands of their customers holding billions in illiquid ARS. The SEC also announced today it is hoping to finalize in the coming months agreements in principle on ARS it has previously reached with Bank of America Corp. and Wachovia Corp. of Charlotte, N.C., and RBC Capital Markets Corp. and Merrill Lynch & Co. Inc. of New York.