Regulator: BofA auction-rate talks stalled

Negotiations with Bank of America Corp. over a possible auction-rate securities settlement appear to be getting a bit testy.

Massachusetts regulators today said talks had slowed and held out the possibility of filing a complaint. Reuters reported that New York Attorney General Andrew Cuomo is issuing subpoenas to several of the bank's executives as it broadens its probe into the Charlotte bank.

Bank of America responded by saying that it had “repeatedly” stated it was willing to enter an agreement similar to those reached by other financial institutions and that it thought it had reached such a settlement nearly two weeks ago.

“We hope that all of the parties will work towards completing a settlement for the benefit of investors who have been affected by unprecedented market disruptions,” spokeswoman Shirley Norton said.

The Charlotte banking giant is one of many financial institutions to come under scrutiny for the sale of a type of bond with resetting interest rates. The market for auction-rate securities froze in February amid the credit crunch, leaving individual and institutional investors unable to access their money.

Earlier this month, Charlotte-based Wachovia Corp. agreed to buy back up to $8.8 billion in auction-rate securities to settle an investigation involving the Missouri secretary of state, Cuomo and the Securities and Exchange Commission. Wachovia, which neither admitted nor denied wrongdoing, also agreed to pay $50 million in fines and could face SEC penalties depending on the success of the buyback program.

Citigroup Inc., UBS, JPMorgan Chase & Co. and Morgan Stanley & Co. also have settled with regulators.

Last week, Bank of America agreed to buy back about $43 million in auction-rate securities from two Massachusetts agencies as part of ongoing talks with Massachusetts Secretary of the Commonwealth William Galvin, who is leading a multi-state probe.

Galvin spokesman Brian McNiff said one of the sticking points was whether the bank will buy back auction-rate securities from the rest of its customers. Talks have slowed but haven't broken off, he said.

If it doesn't reach a resolution, Massachusetts could file a complaint against the bank, McNiff said. It has previously taken actions against UBS and Merrill Lynch.

At issue is how the bonds were pitched to customers. Regulators say banks did not accurately represent the risks to investors, wrongly leading them to believe the bonds were as liquid as cash.

Bank of America said it's worked for nearly a month with Cuomo, Galvin, a coalition of state regulators and the Securities and Exchange Commission to reach an agreement “that would provide liquidity relief to customers who hold auction rate securities.”