Regulators have been investigating Wall Street firms for their role in the sales and marketing of auction-rate investments.
Wall Street agreed to buy back more than $17 billion in securities that they fraudulently sold to retail customers paving the way for other banks and brokerage firms to do the same.
Merrill Lynch jumped ahead of regulator investigatory scrutiny, announcing that they will buy back about $10 billion in auction-rate investments that it sold to retail investors.
Citigroup reached a settled with state and federal regulators, agreeing to buy back about $7.3 billion of auction-rate securities that it sold to retail customers. As recompense for misconduct, Citigroup will pay a $100 million fine for its misconduct. The securities are essentially worthless, even though the buyers were told that the securities were safe and easy to cash in.
Even Bank of America is under attack with subpoenas related to securities sales. Taking on responsibility of bank instruments in bank bailouts has likely posed an additional headache.
At this time, institutional investors are still out in the cold, but both firms claim to be working on a resolution on problems with institutional investors in the hopes of avoiding more heat and gaining brownie points from the federal government. A rush of settlements are expected in the next few months as Wall Street aims to absolve itself.
Regulators are starting to pile on in a sort of informational and investigational bankers bloodletting. The Securities and Exchange Commission has elected to stay out the recent penalties as they expect to weigh in on their own investigation. From all appearance, Wall Street’s troubles have only just begun. Bankers know their guilt. Can they distract the investigations to avoid the embarassment as the propensity of their fraud is exposed to the nation? Seeking to buy out authorities may be seen as an easy way out as the financial onslaught on Wall Street and for banking in general continues.