New York Attorney General Andrew Cuomo and Merrill Lynch & Co. appeared to be close to a settlement over the investment bank's role in selling auction-rate securities. A deal would avert a lawsuit the attorney general threatened against the company.
Cuomo's office said the attorney general would hold a conference call at 4:30 Eastern time (2030 GMT), but refused to say what the call would be about or whether an agreement had been reached. However, Cuomo and Merrill Lynch Chief Executive John Thain were in all-day meetings at the attorney general's office in New York City working toward a possible deal, according to a person familiar with the talks, who spoke on condition of anonymity because he was not authorized to comment publicly.
Cuomo, who along with other regulators has reached $42 billion worth of settlements with five major Wall Street banks over auction-rate sales, said earlier Thursday that talks with the world's largest brokerage were at an impasse.
He said his office had given Merrill a five-day warning that it planned to take legal action; the warning expires Thursday. The attorney general pledged to file suit in New York State Supreme Court by Friday morning.
"Enough is enough," Cuomo told The Associated Press in an interview. "Delay doesn't work as a tactic. I want them to come in quickly and resolve this expeditiously."
Merrill Lynch earlier this month agreed to buy back an estimated $12 billion in auction-rate securities, though the company said it has already been buying back the debt. Merrill Lynch's plan was voluntary and put no set timetable on the transactions.
Cuomo said he wants the investment bank to buy back the securities within a set period of time, and to also pay fines for having pitched them as safe investments to customers. A spokesman for Merrill Lynch declined to comment.
"The main point is the timing of how quickly they offer the buy backs to the investors," Cuomo said. "We want that done quickly, and they had a voluntary time frame that was not acceptable."
But, in a sign that Merrill might be inching closer to a broader settlement, Massachusetts Secretary of State William Galvin said Thursday the brokerage agreed to settle a similar dispute.
Galvin, who is the top securities regulator in Massachusetts, said the agreement calls for Merrill to buy back beginning Oct. 15 all illiquid auction rate securities from investors who have less than $3 million on deposit.
In addition, after Jan. 15, Galvin said Merrill agreed to buy back auction-rate securities from investors with deposits on account of $100 million or less. Massachusetts filed its enforcement action on July 31.
Merrill declined comment on the Massachusetts case.
The investigations are examining how brokerages sold auction-rate securities before the $330 billion market collapsed in February. No one that has settled has admitted wrongdoing.
The auction-rate securities market involved investors buying and selling instruments that resembled corporate debt, but the interest rates on the investments were reset at regular auctions, some as frequently as once a week. A number of companies and retail clients invested in the securities because they could treat their holdings almost like cash.
But the market for them collapsed in February amid the downturn in the broader credit markets. Regulators have been investigating the collapse in the market to determine who was responsible for its demise and whether banks knowingly misrepresented the safety of the securities when selling them to investors.