Legal News

Cuomo?s Threat of a Suit Could Net First Settlement in ARS Party

By Dan Slater

Citigroup may be looking to buy its way out of the auction-rate securities party. NY AG Andrew Cuomo’s threat of a lawsuit against Citi over alleged wrongdoing in the ARS market has led to negotiations with state and federal regulators, reports the WSJ’s Amir Efrati and Liz Rappaport.

(Here’s Saturday’s WSJ story on Cuomo’s recent letter to Citigroup, in which he threatened legal action.)

Cuomo’s office said Citi wrongly told customers the securities were safe, liquid and cash-equivalent. It added that the firm failed to tell investors that, from August 2007 until earlier this year, the market was kept afloat primarily because the bank placed bids in auctions for the securities.

Citing sources familiar with the matter, the Journal notes that a settlement could involve Citi buying back more than $5 billion dollars of the illiquid securities from investors and paying a fine of as much as $100 million.

Spokespeople for Cuomo’s office and the SEC declined to comment. A spokeswoman for Citigroup, which was one of the largest underwriters of auction rate securities, declined to comment.

Full post as published by Law Blog - WSJ.com on August 06, 2008 (boomark / email).