Cuomo Probe Subpoenas Banks on Bond Marketing

Attorney General Cuomo’s office issued subpoenas to 18 banks and securities firms as part of a criminal probe into the marketing of auction-rate bonds to investors and issuers, a person familiar with the investigation said.The subpoenas were issued under the Martin Act, which gives New York investigators broad powers. A spokesman for Mr. Cuomo’s office, John Milgram, declined to comment. Securities regulators in nine other states led by Massachusetts separately yesterday said they formed a task force as they investigate the auction market.“We’re all getting complaints on a daily basis from retail investors and they all have the same the story: they were told by their brokers these were safe as cash and they’re not,” the head of the task force, Bryan Lantagne, said. Mr. Lantagne is also the securities division director for the secretary of state of Massachusetts, William Galvin.Regulatory scrutiny of Wall Street has been growing since the $330 billion auction-rate market collapsed in February, leaving some issuers paying higher penalty rates and investors unable to sell their securities. The Securities and Exchange Commission last week said it is working with the Financial Industry Regulatory Authority, which oversees brokerages, to examine firms’ disclosures to clients who purchased the bonds.The Massachusetts Secretary of State’s office said on March 28 that it subpoenaed information from UBS AG, Merrill Lynch & Co., and Bank of America Corp. regarding the sale of the securities to investors in the state. A number of individuals have also filed lawsuits against Wall Street banks that sold the bonds.Auction-rate securities are long-term bonds sold by municipalities, student loan corporations and closed-end funds with interest rates that are reset on a weekly or monthly basis. Much of the debt was guaranteed by bond insurance companies that also backed subprime mortgage-related securities.Demand for the debt fell earlier this year after AAA rated bond insurers were downgraded because of their subprime guarantees. Wall Street banks running the auctions stopped stepping in to buy the bonds in February when there weren’t enough bidders, permitting thousands of failures that triggered rates as high as 22%.Mr. Cuomo is also asking for information about how bankers persuaded borrowers to issue the bonds and how the banks came to decide when to stop bidding in mid-February, the person familiar with the probe said. The banks Cuomo subpoenaed include Merrill Lynch & Co., UBS, and JPMorgan Chase & Co., the person said.

Cuomo Probe Subpoenas Banks on Bond Marketing

Cuomo Probe Subpoenas Banks on Bond Marketing

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