Goldman says regulators probe auction-rate matters
By Joseph A. Giannone
NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N) disclosed on Wednesday that it has received requests for information from "various governmental agencies and self-regulatory organizations" relating to auction products and the recent failure of such auctions.
Goldman, which disclosed the matter in its 10-Q filing, said it is cooperating with the requests. A spokesman declined to comment.
It is the first time Goldman has been linked to the widening probes.
Wall Street banks have been under fire as the credit crunch spread to auction-rate securities, a $330 billion market of securities that have been sold to wealthy individuals as highly liquid, cash-like instruments. With debt markets breaking down, many investors have found themselves stuck with securities that suddenly they cannot sell.
The U.S. Securities and Exchange Commission and, according to Monday's Wall Street Journal, the Financial Industry Regulatory Authority are looking into the market. In particular, investigators want to learn what promises brokers made to investors who purchased auction-rate products.
A spokesman from FINRA told Reuters Wednesday that the nongovernmental regulator sent surveys to a number of firms earlier this month about how the securities are marketed and sold, and it could decide to take enforcement action based on the information. He said the survey was separate from any reported investigation.
On Tuesday, FINRA announced it is also seeking more details on customer complaints in the market.
Two weeks ago, Massachusetts' top securities regulator said his office sent subpoenas to UBS (UBSN.VX), Merrill Lynch MER.N and Bank of America (BAC.N) Investment Services to determine whether they told investors about the potential risks of these investments.
Also last month, two clients filed lawsuits against Citigroup (C.N) , complaining that the big bank did not disclose the risks of investing in these securities.
Auction-rate securities are long-term bonds that behave like short-term debt and have long been popular with conservative investors because they are tax-exempt. States, cities and other agencies issue these securities, whose interest rates reset frequently.
In February, the auctions failed to attract buyers and investment banks stopped supporting them.
(Additional reporting by Lisa Lambert in Washington; Editing by Brian Moss)
