Attorney General Cuomo Announces Landmark Settlement With Citigroup To Recover Billions In Auction Rate Securities For Investors Nationwide

NEW YORK, NY (August 7, 2008) – Attorney General Andrew M. Cuomo today announced a landmark, multi-billion dollar agreement with Citigroup Global Markets, Inc. and Citi Smith Barney (collectively, “Citigroup”) to settle allegations that Citigroup was making misrepresentations in its marketing and sales of auction rate securities.  Citigroup marketed and sold auction rate securities as safe, cash-equivalent products, when in fact they faced increasing liquidity risk.

Attorney General Cuomo hailed today’s agreement as a turning point for investors nationwide seeking relief from the collapse of the auction rate securities market. 

“Today’s settlement sends a resounding message to the entire auction rate securities industry: This type of deceptive behavior will not be tolerated and we will actively seek justice on behalf of investors in auction rate securities,” said Attorney General Cuomo.  “Our goal is simple: to get investors back their money, and that’s exactly what this deal does.”

Under Cuomo’s settlement, Citigroup has agreed to buy back, no later than November 5, 2008, all illiquid auction rate securities from all Citigroup retail customers, charities, and small to mid-sized businesses.  These customers, who number approximately 40,000 nationwide, have been unable to sell their securities since February 12, 2008.  Their securities are worth more than $7 billion. 

Citigroup will also:

  • fully reimburse all retail investors who sold their auction rate securities at a discount after the market failed;
  • consent to a special, public arbitration process to resolve claims of consequential damages suffered by retail investors as a result of not being able to access their funds;
  • undertake to expeditiously provide liquidity solutions to all other institutional investors; and
  • reimburse all refinancing fees to any New York State municipal issuer who issued auction rate securities through Citigroup since August 1, 2007.

In addition, Citigroup will pay to the State of New York a civil penalty in the amount of $50 million.  The penalty embraces both Citigroup’s substantive conduct and its failure to properly comply with its obligations under the Attorney General’s Martin Act subpoena. 

Citigroup will pay a separate civil penalty of $50 million to the North American Securities Administrators Association (“NASAA”), whose ARS Task Force has been conducting its own series of investigations into the marketing and sale of auction rate securities by broker-dealer firms.  The ARS Task Force’s investigation of Citigroup was led by the Texas State Securities Board.

The Attorney General thanked NASAA and its multi-state ARS Task Force, who joined the Attorney General in announcing the agreement, for their efforts in achieving today’s settlement.  The Attorney General also thanked the enforcement staff of the Securities and Exchange Commission for their contribution in bringing about today’s settlement.

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