U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21585 / June 30, 2010
Securities and Exchange Commission v. Citigroup Global Markets, Inc., Civil Action No. 08 CIV 10753 (S.D.N.Y.); Securities and Exchange Commission v. RBC Capital Markets Corporation, Civil Action No. 09-CIV-5172 (S.D.N.Y); Securities and Exchange Commission v. Wachovia Securities, LLC, Civil Case No. 09 CV 743 (N.D. Ill.)
SEC Completes Review of Performance by Citigroup, RBC and Wachovia Under Auction Rate Securities Settlements
The Securities and Exchange Commission today announced that three financial firms that settled the Commission's auction rate securities (ARS) charges against them have satisfied their obligations under their respective settlements and that more than $26 billion has been returned to their ARS customers.
Under the settlements, Citigroup Global Markets, Inc., RBC Capital Markets Corp., and Wachovia Securities LLC were required to offer to purchase ARS at par from their individual, charitable, and small business customers. Wachovia also agreed to offer to purchase ARS from all of its institutional customers as well.
Nearly 100% of these customers have accepted the firms' offers, resulting in approximately $14 billion of liquidity. Specifically, Citigroup, RBC, and Wachovia purchased ARS from their respective eligible customers in the amounts of $6.38 billion, $759 million, and $7.45 billion.
The settlements also required Citigroup and RBC to use "best efforts" to provide liquidity opportunities to their institutional customers. To assist in its analysis of whether the firms had in fact used "best efforts," the SEC retained an outside expert with extensive knowledge of the ARS market.
From the time of the ARS market failure in February 2008 through May 31, 2010, Citigroup institutional customer holdings were reduced by $8.46 billion or 46% (from $18.55 billion to $10.09 billion) and RBC institutional customer holdings were reduced by $3.2 billion or 48% (from $6.6 billion to $3.4 billion). In compliance with their obligations, Citigroup and RBC each implemented broad-based liquidity measures for their institutional investors.
Citigroup, RBC, and Wachovia also met their other settlement obligations, including compensating investors who sold ARS below par, reimbursing investors for excess interest costs associated with loans taken out due to ARS illiquidity, and participating in special arbitration proceedings before the Financial Industry Regulatory Authority. The firms also submitted periodic reports to, and met quarterly with, SEC staff regarding the firms' progress on meeting their settlement obligations.
To ensure compliance with the terms, the settlements provided for a potential deferred penalty if the firms did not meet their settlement obligations. The SEC has determined that based on the firms' compliance with their respective settlements, as well as other factors, no penalties will be pursued.
The Commission's eight ARS settlements, including those with Citigroup, RBC, and Wachovia, followed the Commission's investigation into the ARS market seizure of February 2008, an event that left tens of thousands of investors holding ARS they could not sell. One of the purposes of the settlements was to return liquidity as quickly as possible, particularly to individuals, charities, and small businesses. To date, over $67 billion has been returned to ARS customers of the settling firms.
The Commission notes the assistance and cooperation from the Office of the New York Attorney General, the Missouri Secretary of State, the Financial Industry Regulatory Authority, the Texas State Securities Board, and the North American Securities Administrators Association.
Litigation Release No. 20824 (SEC v. Citigroup Global Markets, Inc.)
Litigation Release No. 21066 (SEC v. RBC Capital Markets Corp.)
Litigation Release No. 20885 (SEC v. Wachovia Securities, LLC)