Secretary Handel Announces Multi-Million Dollar Securities Settlements with State and Investors

Secretary of State’s Office to Forward Millions in Fines to State General Fund

Atlanta – Georgia Secretary of State Karen Handel announced today the first in a series of multi-million dollar final settlements between her office and several prominent investment firms in cases involving sales of auction rate securities to individual, business and institutional investors. Under these agreements, the firms will repurchase billions of dollars of securities from customers. In addition, the firms will pay approximately $8,500,000 in fines to the Secretary of State’s Office, which the Office will remit to the state’s general fund.

Secretary Handel received fines this week of over $1.71 million from Wachovia Securities and Citibank.

“Now more than ever, it is vitally important that the citizens of Georgia have confidence and trust in their investments and their investment advisors. Today’s settlements and fines demonstrate that the State of Georgia is going to protect our citizens, and firms that engage in improper behavior will face serious consequences. Most importantly, hundreds of Georgia consumers will recover their investments,” Secretary of State Karen Handel said.

“I also want to commend Georgia Securities Division Director Bob Terry for his hard work, leadership and diligence in pursuing these cases. Without Bob and his leadership on the special Task Force, these settlements would not have been possible,” Secretary Handel said. 

In spring 2008, the North American Securities Administrators Association (NASAA) formed a multi-state Task Force to investigate whether some of the nation’s prominent investment firms had misled thousands of investors when recommending that they purchase auction rate securities. 

The Task Force is co-chaired by Bob Terry, Georgia Securities Division Director and Matt Kitzi, Missouri Securities Commissioner, and is comprised of securities regulators in 12 states. As a result of the Task Force's efforts, 11 firms have agreed to repurchase more than $50 billion of auction rate securities, and have likewise agreed to pay over $400,000,000 in fines. It is estimated that over $3.2 billion of auction rate securities were sold to Georgia investors by these firms, a substantial portion of which the firms have agreed to repurchase.

The Georgia Securities Division, along with other states, will continue to investigate firms who are not part of these initial settlements.

Auction rate securities are interest bearing investments, usually bonds or preferred stock, whose yield is determined through periodic auctions. Depending upon the particular security, weekly or monthly auctions would be held at which investors would enter bids for the interest rates they would require to be paid by the issuers.

Although these securities were widely marketed as being highly liquid, or even as “cash equivalents,” their liquidity in fact depended on there being an adequate number of purchasers in the auctions at which their interest rates were set. As broad-based economic uncertainties developed in 2007, a number of underwriters began artificially supporting the market for these securities by purchasing large quantities in the auctions. Finally, in February, 2008, the firms ceased this practice, resulting in “failed” auctions and total illiquidity for investors.  

When the firms stopped these purchases, thousands of investors across the nation were left without access to their money. Individuals, small businesses, charities and institutional investors have all suffered financial hardship as a result of the auction rate securities collapse, ranging from the inability to close on home purchases or pay tax obligations to having shortfalls in payroll and other obligations.

At that point, state regulators began their investigations, which have in turn led to these settlements.

A number of firms have established hotlines to respond to questions from customers concerning the terms of the settlements. Those firms and their ARS hotlines are: Bank of America (866-638-4183), Citi (866-720-4802), Deutsche Bank (866-926-1437), Goldman Sachs (888-350-2857), JP Morgan (866-450-8470), Merrill Lynch (888-706-1381), Morgan Stanley (800-566-2273), UBS (800-253-1974) and Wachovia (866-283-7943).
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.

Karen Handel was sworn in as Secretary of State in January 2007. The Secretary of State's office offers important services to our citizens and our business community. Among the office’s wide-ranging responsibilities, the Secretary of State is charged with conducting efficient and secure elections, the registration of corporations, and the regulation of securities and professional license holders. The office also oversees the Georgia Archives and the Capitol Museum.