Bank of America joins a growing list of banks and brokerage firms that have promised to buy back auction-rate securities sold by their brokers. Today, the nation’s second-largest bank by assets settled an investigation by Massachusetts regulators, agreeing to buy back $4.5 billion worth of the securities.
The bank, which neither admitted nor denied any wrongdoing, said the window for the buyback will open after October 1, and remain that way for three months. Meanwhile, separate investigations of BoA by the New York Attorney General and the SEC are ongoing, and the firm says it is cooperating.
Linda Chatman Thomsen, the SEC’s director of enforcement, issued a statement indicating that a settlement with BofA is imminent: “The SEC Division of Enforcement expects to soon announce the terms of a preliminary settlement with Bank of America that results from our ongoing auction-rate securities investigations. The SEC investigations have resulted in preliminary agreements that represent the biggest financial settlements and returns of customer money in Commission history. We are grateful for the assistance and close cooperation from state regulators and FINRA in helping us return tens of billions of dollars to hundreds of thousands of investors even as our investigations of potential corporate and individual wrongdoing continue.”
Total buybacks of auction-rate securities by the firms that sold them to clients—including Merrill Lynch, Goldman Sachs, Deutsche Bank, UBS, Citigroup, Morgan Stanley, JPMorgan Chase and Wachovia—now total more than $50 billion.
The move to pay back retail investors will no doubt be welcomed by financial advisors, who have been embarrassed by the ARS meltdown. And it has hurt them. In our cover story in July (“Asset-Gathering Machines”), Registered Rep. magazine notes that registered investment advisors—independent fiduciaries—are stealing wirehouse retail assets. Our September cover story (“Whole Lotta Love”) notes that wirehouse management has been sweetening some perks to its best financial advisors to keep them from going independent or joining (or creating) RIAs.