SEC settles with Citigroup over ARS

The Securities and Exchange Commission has announced a “preliminary settlement” with Citigroup. The SEC agreement, announced this morning by its enforcement director, Linda C. Thomsen, was described as a “major enforcement action.” The settlement would require Citigroup Inc. of New York to “immediately” buy back at par value the $7.5 billion of auction rate securities that it sold to investors. The agreement also requires Citigroup “to use its best efforts to liquidate by the end of 2009 all of the approximately $12 billion worth of ARS” it sold “to retirement plans and other institutional investors,” according to an SEC statement. Under the settlement, Citigroup will not admit to charges that it marketed ARS as a highly liquid investment. Also, Citigroup faces a likely SEC penalty, which Ms. Thomsen said would be determined at a later date. She said that Citigroup was “a significant marketer of auction rate securities, accounting for one-fifth of the market,” and that the settlement “will provide relief to tens of thousands of investors.” The settlement was a “co-coordinated effort” with other enforcement agencies. Similar agreements have been reached with New York Attorney General Andrew Cuomo, Ms. Thomsen said. She also credited law enforcement officials in Texas and New Jersey in helping to reach settlements. The SEC action follows the February collapse of the ARS market, which lost $300 billion.