Bank of America Corp. has agreed to buy back about $43million in auction-rate securities from two Massachusetts agencies as part of ongoing settlement talks, a state regulator said Wednesday.
The Charlotte bank 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.
Bank of America has agreed to purchase the securities from the Massachusetts Turnpike Authority and the Massachusetts Housing Partnership, said Brian McNiff, spokesman for Massachusetts Secretary of the Commonwealth William Galvin. The two agencies had bought the securities as investments, McNiff said.
Bank of America spokeswoman Shirley Norton declined comment.
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Galvin, who regulates the securities industry, is leading a 12-state investigation that includes the office of New York Attorney General Andrew Cuomo. Bank of America's wealth and investment management division is based in Boston.
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.
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 $50million 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.
Auction-rate securities are bonds with interest rates that reset periodically – usually every seven, 28 or 35 days. They can be issued by municipalities, hospitals, student-loan companies and other special entities. Banks and brokerage firms package them to sell to the public, and they can also submit the bids that reset the interest rates. If there are not enough bids to cover the securities for sale, then the auction fails and the investors cannot access their principal.