– The Office of the Attorney General
through its Bureau of Securities today signed
a final Consent Order that requires Citigroup
Global Markets Inc. to complete or confirm
its repurchase of auction-rate securities
(ARS) from New Jersey clients to settle allegations
that the firm’s securities dealers failed
to disclose risks of the ARS market.
Under this settlement, 2,873 individual investors
in New Jersey as defined in the Consent Order
are eligible to have $623.5 million in ARS
“Citigroup’s New Jersey investors
whose ARS investments were frozen during last
year’s meltdown will now have free access
to their funds, under terms of this settlement,”
Attorney General Anne Milgram said. “Our
Bureau of Securities worked with other state
regulators to protect investors and safeguard
Although marketed and sold to investors as
safe, liquid, and cash-like investments, ARSs
are actually long-term investments subject
to a complex auction process that failed in
early 2008, revealing illiquidity and lower
interest rates than investors were promised.
Bureau of Securities teamed up with other
state regulators in a task force that combined
and coordinated investigative resources,”
said David Szuchman, Consumer Affairs Director.
“New Jersey will continue to be a leader
in protecting its investors.”
the first failed ARS, the Bureau of Securities
has sought to secure much needed relief for
investors stuck with these unsuitable and
illiquid products,” said Marc B. Minor,
New Jersey Bureau of Securities chief. “I
am pleased that Citigroup has agreed to do
what’s right by offering to repurchase
clients’ positions, and I expect other
firms that sold these securities in New Jersey
to do the same.”
ARS settlements with other investment firms
are currently being negotiated, Minor noted.
The order also requires Citigroup to pay a
$3,300,932.67 civil penalty to New Jersey.
This amount represents the state’s pro-rata
share of a settlement negotiated by a multi-state
task force of state regulators formed by the
North American Securities Administrators Association
the investigation, regulators discovered that
Citigroup’s securities dealers failed
to adequately inform customers and train employees
on the risks associated with buying auction-rate
The investigation into Citigroup’s role
in the marketing of auction rate securities
is part of a larger state-led effort to address
problems in connection with ARS investments.
Early in 2008, state offices began receiving
complaints from investors throughout the country.
As a result, in April, 12 states, including
New Jersey, formed a task force to investigate
whether the nation's prominent Wall Street
firms had systematically misled investors
when placing them in auction rate securities.
The Consent Order announced today sets forth
the allegations by the BOS and the terms that
were agreed to in principle in August, 2008.
BOS Investigating Attorney Peter C. Cole led
New Jersey’s efforts in securing this
settlement and protecting Garden State investors.
Bureau of Securities can be contacted toll-free
within New Jersey at 1-877-I-INVEST
(1-877-446-8378) or from outside New Jersey
at 973-504-3600. The Bureau's
web site is located at www.njsecurities.gov.