State Securities Regulators Announce Settlements with Merrill Lynch, Goldman Sachs, Deutsche Bank in Auction Rate Securities Investigations

WASHINGTON, D.C. August 21, 2008 — The North American Securities Administrators Association (NASAA) today announced that settlements in principle have been reached between Merrill Lynch & Co. Inc., Goldman Sachs Group Inc., Deutsche Bank Securities Inc, Deutsche Bank AG and state securities regulators, which will give thousands of the firms’ clients access to billions of dollars in funds that have been frozen in the auction rate securities (ARS) market.

The settlements conclude investigations led by state securities regulators into allegations that the firms misled clients by falsely assuring them that ARS securities were as safe and liquid as cash. The ARS markets froze in February this year, triggering a flood of complaints from investors who could not withdraw money from their accounts. States received complaints from a wide range of investors who suffered significant financial damage because the money they were told was liquid was tied up in the frozen ARS market.

“State securities regulators continue to work toward ensuring that investors harmed by auction rate securities are provided relief,” said NASAA President and North Dakota Securities Commissioner Karen Tyler.

Under the terms of the settlement, Merrill Lynch agreed to buy back by October 1, 2008 all auction rate securities purchased through the firm by retail investors with accounts of $4 million or less in assets; by January 2, 2009 for all other retail investors and all other investors with accounts of $100 million or less in assets. Goldman Sachs agreed by November 12, 2008 to buy back auction rate securities for all retail investors who purchased ARS securities through the firm and Deutsche Bank agreed to buy back auction rate securities from all retail investors who purchased ARS securities through Deutsche by 90 days from today’s date.

Under the settlements announced today, Merrill Lynch, Goldman Sachs, and Deutsche Bank will:

  • Fully reimburse all retail investors who sold their auction rate securities at a discount after the market failed;
  • Consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by retail investors as a result of not being able to access their funds;
  • Undertake to expeditiously provide liquidity solutions to all other institutional investors;
  • Reimburse all refinancing fees to any municipal issuers who issued auction rate securities through these firms since August 1, 2007.

Each firm will also agree to pay to the states civil penalties in the following amounts: Merrill Lynch, $125 million; Goldman Sachs, $22.5 million; and Deutsche Bank, $15 million.

NASAA President Tyler thanked securities regulators in Illinois, Massachusetts, and New Jersey, which were the lead states in the investigations of the three firms, as well as the New York Office of the Attorney General and the U.S. Securities and Exchange Commission for their efforts in reaching the settlements.

The investigation into possible violations by the three firms is part of a larger state-led effort to address problems in connection with the offer and sale of ARS securities. Earlier this year, state offices began receiving hundreds of complaints from Main Street investors. As a result, in April, NASAA announced the formation of a multi-state Task Force, comprised of securities regulators in 12 states, to investigate whether the nation’s prominent Wall Street firms had systematically misled investors when placing them in ARS securities.

NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico.

For more information:
Bob Webster, Director of Communications
202-737-0900

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