Apparently prompted by investigations of other brokers and overtures from the New York Attorney General and other regulators, three more broker-dealers have announced intentions to buy back auction rate securities (ARS) or otherwise settle ARS claims.
- On August 7, 2008, Merrill Lynch “proactively” offered to buy back $10B in ARS. In its press release (please click here), Merrill announced that, beginning on January 15, 2009 and ending on January 15, 2010, retail investors will be able to sell their ARS back to Merrill. Merrill described “retail investors” as individuals, charitable institutions, and family-owned and small businesses. Unlike the prior UBS settlement and the offer by Morgan Stanley described below, Merrill has not yet taken a position regarding investors who sold their ARS at a loss or stated whether it will engage in arbitrations to deal with consequential damages suffered by customers unable to liquidate their securities.
- On August 11, 2008 Morgan Stanley announced that it intends to buy back $4.5B in ARS from retail clients, charities and small businesses. Morgan Stanley’s press release (click here) also noted that it would “make whole” any losses by its investors who had been forced to sell ARS at a discount, that it would agree to arbitration for consequential damages suffered by its investors who were unable to liquidate their investments, and that it would use its best efforts to “make whole” its institutional investors.
- Although the New York Attorney General, initially rebuffed Morgan Stanley’s offer, reportedly stating that it was “too little, too late,” on August 14, 2008 the NYAG’s office announced that it had reached a settlement with both Morgan Stanley and J.P. Morgan. Although the press release (click here) states only that the combined settlement with J.P. Morgan and Morgan Stanley is $7B, reports indicate that that Morgan Stanley’s original $4.5B remains its share of the settlement. The terms of the settlement include similar provisions to the UBS settlement, including requirements that Morgan Stanley and J.P. Morgan buy back securities from retail investors, charitable institutions, and small or family-run businesses by a specific date (Nov. 12, 2008 for J.P. Morgan, and Dec. 11, 2008 for Morgan Stanley). In addition, both must submit to arbitration to deal with consequential damages and must reimburse retail customers who sold their ARS at a discount after the market failed. The settlements also impose substantial fines on both JP Morgan and Morgan Stanley ($25M and $35M respectively).
- On August 11, 2008, Wachovia stated that it was in the midst of settlement negotiations with regulators and that it had set aside $500M for possible settlements. As of August 14, 2008, reports suggested that it was close to reaching a settlement with Missouri’s Secretary of State.