Wachovia Settles Auction-Rate Probe

Updated from 4:45 p.m. EDT.

Wachovia(WB Quote) has agreed to buy back some $8.8 billion worth of auction-rate securities in the latest settlement in the widespread investigation led by state and federal regulators.

The Securities and Exchange Commission said Friday morning that Wachovia has agreed to purchase roughly $5.7 billion of auction-rate securities held by individual investors, small businesses and not-for-profit organizations. The buyback will begin on Nov. 10 and conclude Nov. 28. The Charlotte, N.C.-based bank will also offer to purchase $3.1 billion held by all other Wachovia investors in June of next year, the SEC says.

Wachovia will pay state securities regulators a $50 million fine, according to a release by the Missouri Secretary of State Robin Carnahan. Wachovia neither admits nor denies allegations of wrongdoing.

Carnahan launched an investigation into Wachovia's brokerage unit and other firms after receiving more than 70 formal complaints. Investors reported that auction rate securities were sold as money market equivalents, but investors have not been able to access their money as promised since the market froze in February 2008, Carnahan's office alleges.

Wachovia is the latest of the financial firms being probed by New York Attorney General Andrew Cuomo, state and federal securities regulators in an industry-wide investigation into auction-rate securities abuses. Cuomo alleged that large banks misrepresented the apparent safety of the securities, marketing them as a safe alternative to cash.

On Thursday, JPMorgan Chase(JPM Quote) and Morgan Stanley(MS Quote), which had voluntarily agreed earlier in the week to buy back $4.5 billion worth of auction rate securities, settled with Cuomo's office and state regulators. The SEC is still investigating JPMorgan.