Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, September 10, 2008

Bank of America Settles with Massachusetts over ARS Sales

Bank of America becomes the latest to settle with regulators, in this case the Massachusetts Securities Division, about its auction rate securities (ARS) sales practices.  It announced an agreement in principle with the Massachusetts Securities Division under which it will offer to purchase at par ARS held by its retail customers. The offer will cover approximately $4.5 billion in ARS held by an estimated 5,500 Bank of America customers.  Bank of America has informed the SEC and the New York State Attorney General's Office of the agreement and, according to its press release, continues to cooperate fully with the SEC's and the NYAG's ongoing investigations.

The terms of the agreement in principle include the following:

The offer to purchase applies to individual investors and trusts for the benefit of individuals which purchased auction rate securities before February 11, 2008. It also applies to businesses with account values up to $10 million and charities with account values up to $25 million. It does not apply to auction rate securities where auctions are clearing.

Bank of America will compensate eligible customers who purchased ARS through the company prior to February 11, 2008, and sold such securities at a loss between that date and the date of this announcement.

To the extent that eligible customers believe they have a claim for consequential damages beyond the loss of liquidity in the individual customer's holdings of ARS or loss based on a sale at less than par, Bank of America will participate in a special arbitration process. The special arbitration process is available at the customer's election and will be overseen by FINRA with Bank of America paying FINRA's forum and filing fees.

Bank of America's repurchase program will remain open for three months beginning the later of October 1, 2008, or as soon as practicable after the SEC provides definitive guidance on the mechanics of the program.

Bank of America will endeavor to work with issuers and other interested parties, including regulatory and government entities, to expeditiously and on a best efforts basis provide liquidity solutions for institutional customers.

Bank of America will refund refinancing fees it received from all municipal issuers that issued ARS in the primary market through Bank of America between August 1, 2007, and February 11, 2008, and refinanced those securities through the company after February 11, 2008.

The company neither admits nor denies allegations of wrongdoing.

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