Brokerage firms must reimburse Michigan investors, pay state $3.5 million

FOR IMMEDIATE RELEASE 
July 1, 2009
Contact: Jason Moon  517-335-1700

LANSING – The Office of Financial and Insurance Regulation (OFIR) today announced that it has reached a settlement with Merrill Lynch and Banc of America (BOA) regarding Auction Rate Securities (ARS). The settlement requires Merrill and BOA to offer full buybacks to any eligible customer who purchased an ARS from the brokerage firms, including up to $670 million from Merrill and up to $122 million from BOA. The settlement also requires Merrill and BOA to make a settlement payments of $3.09 million and $468,000, respectively, of which 90 percent will be deposited immediately in the State of Michigan’s general fund, as required by law, and the remaining ten percent will go to OFIR’s Michigan Investor Protection Trust.

The settlement with Merrill and BOA is in addition to OFIR’s previous ARS settlements with Citigroup, Comerica and Wachovia. In total, OFIR settlements have resulted in offers for full buybacks of more than $3 billion to Michigan consumers and settlement payments of more than $6 million to the State of Michigan.

“In addition to providing $800 million to Michigan investors, this settlement puts $3 million in the general fund,” OFIR Commissioner Ken Ross said.  

The settlement resolves a multi-state investigation into allegations that Merrill and BOA misled investors regarding the liquidity risks associated with investing into ARS. The investigation alleged that the firms misled investors by representing ARS as a safe and secure investment option to buyers and were said to have the same liquidity as cash. When the market for ARS collapsed last year, investors were stunned to learn their accounts were frozen and they no longer had access to their money. The direct result for many investors was that their money was no longer available to support ongoing business operations.

The Michigan Investor Protection Trust is funded entirely by securities settlements and is used to educate Michigan consumers on investment issues and how to avoid financial scams. OFIR has used these funds to expand the “Investor Education in Your Community” program that educates Michigan investors on how to avoid falling victim to investment fraud. The fund is also used to support OFIR’s investment scams training for local law enforcement and aid the agency’s “Free Lunch Seminar Monitor” program that gives individuals an opportunity to fight back against unscrupulous promoters by reporting questionable investment practices to OFIR. 

If Michigan investors have any questions about an investment firm, professional or product, please contact OFIR toll-free at (877) 999-6442 or online at www.michigan.gov/ofir.

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