Merrill Lynch will pay Virginia $1.37 million as part of a multistate settlement over a poorly explained, risky investment, the State Corporation Commission said Monday.
The agreement is the latest turn in a broad, nationwide backlash over auction-rate securities after the market for them collapsed last year. Merrill and other Wall Street firms have agreed to buy back the securities from their clients.
Auction-rate securities — long-term bonds whose interest rates are regularly reset through auction — were widely pitched as safe investments equivalent to cash. Investors, however, found themselves frozen out from their money when those auctions fell apart in early 2008.
An investigation by a multistate task force formed by the North American Securities Administrators Association found securities dealers had “failed to adequately inform customers and train employees on the risks associated with buying auction-rate securities,” according to the Virginia agency, which had participated in the investigation.
Other firms, including Bank of America, TD Ameritrade, Goldman Sachs and JP Morgan Chase also have entered into settlements over auction-rate securities.
Bank of America announced it would buy Merrill Lynch in September 2008, during the height of the recession as the nation’s biggest banking giants were collapsing. The deal was completed early this year.
Wells Fargo last month agreed to give back $1.3 billion to its clients who had seen their money frozen, part of the $61 billion that investors have been reimbursed since the auction-rate market collapsed, according to the North American Securities Administrators Association.
As part of the settlement in Virginia, Merrill Lynch must confirm the buyback of the securities from the clients, according to the SCC.
