States in auction-rate probes of 12 firms: Texas

By Joan Gralla

NEW YORK (Reuters) - A multi-state task force is probing a total of 12 Wall Street firms, including Citigroup, over how they handled clients' investments in auction rate paper, the Texas state securities commissioner said on Thursday.

New York attorney general Andrew Cuomo and the Securities and Exchange Commission on Thursday morning announced that Citigroup had reached a $7 billion settlement with individuals who bought auction-rate paper.

To speed the investigations, each of the 12 states in the task force is taking the lead on one to two Wall Street firms, the Texas commissioner, Denise Voigt Crawford, said. She declined to name any of the other firms being probed.

"I anticipate that some will settle very soon, it may be perhaps in the next couple of weeks," she said.

States, cities, hospitals and museums all sold auction-rate paper, which is long-term debt whose interest rates are reset at periodic auctions.

The $330 billion market froze in January when investors, fearing the bond insurers that guaranteed their debt were no longer credit-worthy, overwhelmed dealers with too many sales. Investors were then trapped with securities, which had been billed as the next best thing to cash, that could not be sold.

No state probing auction-rate securities is precluded from investigating any banks or broker-dealers.

"We can go after anybody we want to. In order to move as expeditiously as possible, we've assigned these different states one to two firms to focus on," Crawford said.

Separately, Both New York's attorney general and a spokesman for Massachusetts' top securities regulator, William Galvin, on Thursday said their investigations of Merrill Lynch & Co Inc over auction-rate securities are ongoing. New York and Massachusetts are also both probing UBS.

The list of Wall Street firms whose profits and reputations have been imperiled in the auction-rate debacle includes Goldman Sachs, which in April said "various governmental agencies and self-regulatory organizations" had sought information about auction-rate debt and the failure of auctions.

(Additional reporting by Muralikumar Anantharaman in Boston, Jonathan Stempel and Grant McCool in New York; Editing by Leslie Adler)