Citi, Wachovia pay back $4.7B to California residents

Wachovia Corp. and Citigroup Inc. have agreed to return a total of $4.7 billion to state residents who bought auction-rate securities from the companies, California regulators announced.

The agreement, announced yesterday, finalizes agreements reached with the firms last year.

Regulators had alleged Wachovia and Citigroup misrepresented auction-rate securities as safe, cash-equivalent products, even though the products faced increasing liquidity risk.

In auction-rate securities markets, investors trade what resembles corporate debt, but interest rates are reset at frequent auctions, sometimes weekly. The $330 billion market for them fell apart last year amid the downturn in the broader credit markets.

At least 10 banks and investment firms have agreed to buy back securities from investors across the country, including Merrill Lynch & Co., Goldman Sachs Group Inc., Deutsche Bank, UBS AG, Citigroup Inc., Morgan Stanley and J.P. Morgan Chase & Co.

“Today’s multibillion-dollar agreement is an important and timely relief for investors who lost funds in the collapse of the auction-rate securities market,” said Preston DuFauchard, commissioner of California’s Department of Corporations, which oversees the financial services industry.

Under the settlement, Wachovia will repurchase $1.5 billion in auction-rate securities from eligible customers in the California. Citigroup agreed to repurchase $3.2 billion. The companies will also pay administrative penalties to the state, according to a statement by the California corporations department,

Customers who want auction-rate securities repurchased by the two brokerages should contact the firms directly. Wachovia customers may call (866) 283-7943. Citigroup customers may call (866) 720-4802.

Related Topics: Citigroup Inc., Wachovia