Another bank, Wachovia Corp., will buy back nearly $9 billion in auction-rate debt to settle complaints that it misled investors. In the settlement, Wachovia, the fourth-largest U.S. bank, agreed to repurchase auction-rate securities totaling $8.8 billion, including $5.7 billion in securities held by over 40,000 individual investors, charities and small businesses. The $330 billion auction-rate market normally allows issuers to borrow money for the long term at low, short-term rates. But demand at the daily auctions for the securities faded earlier this year amid a broader flight from risky investments, leaving owners unable to redeem them for cash.
Wachovia’s initial buyback is slated for November 10th through November 28th. Wachovia will offer to repurchase $3.1 billion between June 10th and June 30, 2009. The bank also will pay a $50 million fine and make no-interest loans available immediately for investors who need liquidity before the buyouts are completed. Wachovia also agreed to participate in a special arbitration process for investors who suffered a loss or damages due to an inability to access their money. It also pledged to reimburse investors who sold their auction-rate securities for an amount below par after the meltdown. The auction-rate securities were sold through Wachovia Capital Markets LLC and Wachovia Securities LLC, known as A.G. Edwards Inc. before Wachovia acquired it in October 2007. Wachovia owns 62% of Wachovia Securities, while Prudential Financial Inc. holds the rest. Wachovia could face additional penalties depending on its settlement performance, according to the SEC.
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