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Post date: August 21 2008

Attorney General Cuomo Announces Settlements With Merrill Lynch, Goldman Sachs, And Deutsche Bank To Recover Billions For Investors In Auction Rate Securities

NEW YORK, NY (August 21, 2008) - Attorney General Andrew M. Cuomo today announced another round of agreements to provide liquidity to consumers who purchased auction rate securities. Under the latest series of agreements, Merrill Lynch & Co. (“Merrill Lynch”), The Goldman Sachs Group, Inc. (“Goldman Sachs”), Deutsche Bank Securities, Inc. and Deutsche Bank AG (collectively, “Deutsche Bank”) will return an estimated $10 billion to investors across New York State and the nation. The agreement settles allegations that these firms made misrepresentations in their marketing and sales of auction rate securities. These firms marketed and sold auction rate securities as safe, cash-equivalent products, when in fact they faced increasing liquidity risk.

Within the past two weeks, Cuomo has signed agreements restoring an estimated $50 billion of liquidity to over 183,000 thousand investors across the nation.

“Today is a win for investors and a win for the market, and to date we’ve returned close to $50 billions back into the pockets of investors,” said Attorney General Andrew Cuomo. “At the heart of this investigation, is improving confidence for the investor and for the market, and today we’ve taken another giant step forward towards fulfilling this goal.”

Under Cuomo’s settlements, the firms have agreed to the following buy-backs of all auction rate securities held by all individuals, all charities and non-profits, and those small to medium-sized businesses (collectively, “retail investors”):

  • Merrill Lynch: by October 1, 2008 for all retail investors with accounts of $4 million or less in assets; by January 2, 2009 for all other retail investors and all other businesses with accounts of $100 million or less in assets
  • Goldman Sachs: by November 12, 2008 for all retail investors
  • Deutsche Bank: by 90 days from today’s date for all retail investors

These settling firms will also make whole investors who sold securities for a loss. Each firm will also pay New York State and other states securities regulators penalties in the following amounts:

  • Merrill Lynch: $125 million
  • Goldman Sachs: $22.5 million
  • Deutsche Bank: $15 million

Today’s agreement comes a week after agreements with JP Morgan, Morgan Stanley, and Wachovia, and two weeks after Cuomo settled similar allegations against Citigroup and UBS. The eight settlements together provide relief to thousands of investors who were left holding close to $50 billion worth of securities they could not sell after the widespread failure of the auction rate securities market this past February:

From the beginning of his investigation into the auction rate market, the Attorney General’s objective has been to bring relief to investors stuck with illiquid auction rate securities. Citigroup, UBS, JP Morgan, Morgan Stanley, Wachovia, Merrill Lynch, Goldman Sachs, and Deutsche Bank are eight of the larger participants in the auction rate securities market, and among them are responsible for a substantial majority of all auction rate securities owned by investors. The settlements with these eight firms accomplish precisely the kind of relief investors have demanded, and deserve. The investigation continues as to other market participants.

Under the settlements announced today, Merrill Lynch, Goldman Sachs, and Deutsche Bank 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 procedure 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;
  • Reimburse all refinancing fees to any New York State municipal issuers who issued auction rate securities through these firms since August 1, 2007.

The Attorney General thanked NASAA, its president, Karen Tyler, and its multi-state ARS Task Force, who joined the Attorney General in announcing the agreements, for their efforts in achieving today’s settlements. He also thanked Illinois’ and New Jersey’ state securities regulators. In addition, the Attorney General thanked the enforcement staff of the Securities and Exchange Commission for their cooperation in their auction rate securities investigations.

Assistant Attorneys General Vicki Andreadis, Laurence Borten, Thomas Teige Carroll, Peter Dean, Pamela Mahon, Armen Morian, Christopher Mulvihill, Harriet Rosen, Daniel Sangeap, Alisha Smith and Ethan Zlotchew, conducted these investigations along with Kitty Kay Chan, Economist for the Division of Economic Justice, all under the supervision of David A. Markowitz, Chief of the Investor Protection Bureau, and Eric Corngold, Executive Deputy Attorney General for Economic Justice.

Cuomo’s auction rate securities investigation is continuing.