NEW YORK Bank of America (BAC.N) and the Royal Bank of Canada (RY.TO) have agreed to settle allegations that they made misrepresentations in marketing and sales of auction-rate securities, authorities said on Wednesday.
Bank of America will return $4.5 billion to investors and the Canadian bank will recover $850 million worth of the risky securities, the latest in a series of settlements announced in recent months by the Securities and Exchange Commission, New York Attorney General Andrew Cuomo and the American Securities Administrators Association.
The Canadian bank will pay a penalty of $9.8 million and the Bank of America will pay a $50 million penalty, the New York attorney general's office said in a statement.
"In today's economic climate, it's more important than ever for investors to be able to access their money," Cuomo said. "Returning billions of dollars back to investors not only protects their interests but also increases confidence in the entire market."
Under the settlements the institutions neither admit nor deny any wrongdoing.
The $330 billion market for auction-rate debt, long-term bonds whose rates are set at periodic auctions, froze in February and left investors without access to funds they were told were nearly as liquid as cash.
The RBC said in a statement that it will offer to purchase, at par, auction rate securities held by its U.S. retail brokerage clients, small institutions and businesses.
"The impact of the repurchase offer to RBC's fourth quarter 2008 results is currently estimated to be approximately US$30 million on a pre-tax basis," the bank said.
It includes the penalty it will pay to the New York Attorney General's office and the North American Securities Administrators Association.
(Reporting by Grant McCool, editing by Richard Chang)