WASHINGTON: Federal regulators said Friday that investors who bought risky auction-rate securities from Merrill Lynch & Co. before the market for those bonds collapsed will be able to recover up to $7 billion under a new agreement.
The largest US brokerage will buy back the securities from thousands of investors under a settlement with the Securities and Exchange Commission, New York Attorney General Andrew Cuomo and other state regulators over its role in selling the high-risk bonds to retail investors. Under that deal, announced Thursday, Merrill agreed to hasten its voluntary buyback plan by repurchasing $10 billion to $12 billion of the securities from investors by Jan. 2.
Merrill also agreed to pay a $125 million fine in a separate accord with state regulators.
The $330 billion market for auction-rate securities collapsed in mid-February.
The SEC’s estimate of a $7 billion recovery is based on its projection of the eventual amount of the bonds that will be cashed in by the affected investors, who bought them before Feb. 13. The $10 billion to $12 billion is the total amount that Merrill is committing to buy back. The firm has to offer redemptions to all investors, though not all may cash in the securities.
