18 Banks Said to Get Subpoenas in Securities Case

NEW YORK -- State regulators are stepping up their inquiries into auction rate securities and how Wall Street banks sold them to investors, The New York Times reported Thursday.

The attorney general of New York, Andrew M. Cuomo, has subpoenaed 18 banks that underwrote and brokered the investments, people with knowledge of the inquiry said on Thursday, according to the paper. Also, securities regulators from nine other states have formed a task force to look into the matter.

The regulators are looking at how banks disclosed the risks of auction failures to investors, which typically include affluent families and corporations, the paper reported.

Cuomo’s office is also exploring how the securities were marketed to municipalities like the Port Authority of New York and New Jersey, which was forced to pay a high “penalty” interest rate on bonds for which auctions failed, the paper reported. Officials say that in many cases, investors were sold auction rate securities as “cash” or “cash equivalents” and were not warned that auction failures posed a significant risk.

Additionally, probes into the auction-rate securities market are underway by securities regulators in nine states, the North American Securities Administrators Association said on Thursday, according to Reuters.

Responding to complaints, regulators in Florida, Georgia, Illinois, Massachusetts, Missouri, New Hampshire, New Jersey, Texas and Washington have formed a task force and have individual state investigations underway, according to the membership organization, Reuters reported.

-- NYSSCPA.org News Staff

Posted on 4/18/08