Brokerage firms must reimburse Michigan investors, pay state over $2.3 million in fines 

FOR IMMEDIATE RELEASE 
April 15, 2009
Contact: Jason Moon  517-335-1700

LANSING – The Office of Financial and Insurance Regulation (OFIR) today announced that it has reached a settlement with Citigroup Global Markets Inc. and Wachovia Capital Markets regarding Auction Rate Securities (ARS). The settlement requires Citi and Wachovia to offer full buybacks to any eligible customer who purchased an ARS from the brokerage firms, including up to $717 million from Citi and up to $159 million from Wachovia. The settlement also requires Citi and Wachovia to pay an administrative fine of $1.72 million and $654,000, respectively, of which 90 percent will be deposited immediately in the State of Michigan’s general fund, as required by law, and the remaining ten percent will go to OFIR’s Michigan Investor Protection Trust.

The settlement resolves a multi-state investigation into allegations that Citi and Wachovia misled investors regarding the liquidity risks associated with investing into ARS. The investigation alleged that the firms misled investors by representing ARS as a safe and secure investment option to buyers and were said to have the same liquidity as cash. When the market for ARS collapsed last year, investors were stunned to learn their accounts were frozen and they no longer had access to their money. The direct result for many investors was that their money was no longer available to support ongoing business operations.

“This deal is good for Michigan investors and pumps over $2 million into the general fund,” OFIR Commissioner Ken Ross said. “Consumer protection pays dividends for Michigan.”

The Michigan Investor Protection Trust is funded entirely by securities fines and is used to educate Michigan consumers on investment issues and how to avoid financial scams. OFIR has used these funds to expand the “Investor Education in Your Community” program that educates Michigan investors on how to avoid falling victim to investment fraud. The fund is also used to support OFIR’s investment scams training for local law enforcement and aid the agency’s “Free Lunch Seminar Monitor” program that gives individuals an opportunity to fight back against unscrupulous promoters by reporting questionable investment practices to OFIR for investigation. 

If Michigan investors have any questions about an investment firm, professional or product, please contact OFIR toll-free at (877) 999-6442 or online at www.michigan.gov/ofir.

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