Auction-Rate Probe Expanded

Updated from 1:26 p.m. EDT.

New York State Attorney General Andrew Cuomo on Monday turned his probe into auction-rate securities abuses to JPMorgan Chase (JPM Quote), Morgan Stanley (MS Quote) and Wachovia (WB Quote).

Cuomo sent letters to the three financial companies saying that his office would be probing each firm's behavior "pertaining to misrepresenting auction rate securities to investors as safe, cash-equivalent products, when in fact they faced increasing liquidity risk," Cuomo said in a press release.

The letters come just days after Cuomo, other state authorities and the Securities and Exchange Commission reached a $7.3 billion settlement with Citigroup(C Quote), shortly after which Merrill Lynch(MER Quote) said it would voluntarily buy back some $12 billion in securities from customers. UBS(UBS Quote) followed suit on Friday, agreeing to buy back more than $19 billion in auction rate securities.

The three letters, released by Cuomo's office, were all similar in form. Each pointed to the need to expand an investigation as it would be "unfair to consumers with accounts at other firms, and well as to the firms that settled, if our investigation were to slowdown or stop," Cuomo said in each of the letters. "Accordingly, our investigation's focus is shifting to the next group of market participants," which includes JPMorgan Chase, Morgan Stanley and Wachovia.

Morgan Stanley said in an emailed statement that the firm has been and will "continue to cooperate fully with the regulators, and have been working with clients since February to provide liquidity on a case-by-case basis."

A spokeswoman for Wachovia says the company is meeting with regulators in Jefferson City, Mo., Monday and "looked forward to the discussions."

A JPMorgan spokesman said, "We are cooperating with all regulatory inquiries we have received regarding auction-rate securities."

JPMorgan Chase declined to comment on the letter through a spokesman.