UPDATE 2-HSBC, US Bancorp pay fines on auction-rate debt

* HSBC fined $1.5 million, US Bancorp $275,000

* 14 brokerages have settled with FINRA

* $330 billion auction-rate market froze in Feb. 2008

* HSBC says offered to buy back debt in October 2008

* US Bancorp says cooperated with FINRA probe (Adds HSBC and US Bancorp comments, other probes)

By Jonathan Stempel

NEW YORK, April 22 (Reuters) - Brokerage units of HSBC Holdings Plc (HSBA.L) and US Bancorp (USB.N) agreed to pay a combined $1.78 million in fines to settle regulatory charges that they failed to properly disclose the risks of auction-rate securities.

The Financial Industry Regulatory Authority fined HSBC Securities USA $1.5 million for telling customers the debt was liquid and safe, even after the risks had become apparent. HSBC also agreed to repurchase more of the debt from customers, in addition to $562 million it has already bought back.

FINRA said it fined US Bancorp Investments Inc $275,000 for using internal marketing materials that did not adequately disclose the risks of auction-rate debt. It said the brokerage has bought back more than $150 million of the debt.

"The failure of each of these firms to adequately disclose the risks associated with auction-rate securities left customers unprepared for the failure of the auction market," FINRA enforcement chief James Shorris said in a statement.

Neither brokerage admitted wrongdoing. HSBC has offices in London, and US Bancorp is based in Minneapolis.

Auction-rate debt has interest payments that reset at periodic auctions. Regulators say many brokerages misled customers into believing the debt was as safe as cash.

But the $330 billion market froze in February 2008 when dealers stopped supporting it. This left investors stuck with debt that lost value and which they could not sell.

HSBC spokeswoman Juanita Gutierrez said the brokerage is pleased to settle, and in October 2008 offered to buy back auction-rate debt remaining in its customers' accounts.

US Bancorp spokesman Steve Dale said US Bancorp Investments neither issued nor underwrote auction-rate debt, and like many rivals "sold them in response to customer demand." He said the brokerage cooperated with FINRA's probe.

FINRA said it has settled with 14 firms over auction-rate debt, imposing nearly $5 million of fines. The firms have also returned more than $2 billion to affected investors. FINRA said its investigation continues at other brokerages.

New York Attorney General Andrew Cuomo has announced separate agreements with 14 brokerages to buy back more than $61 billion of auction-rate debt. (Reporting by Jonathan Stempel; Editing by Tim Dobbyn)