Merrill, Goldman Settle Auction-Rate Spats

Updated from 3:02 p.m. EDT

Merrill Lynch(MER Quote), Goldman Sachs (GS Quote) and Deutsche Bank(DB Quote) on late Thursday agreed to settlements with New York Attorney General Andrew Cuomo in the wide-ranging probe into sales of auction-rate securities.

Cuomo, the Securities and Exchange Commission and other state securities regulators have been probing many banks and brokerage firms in a widespread industry investigation into auction-rate securities abuses. Regulators allege that firms misrepresented the securities in their marketing materials as safe, cash-like investments.

Cuomo said that as part of the latest settlements, Merrill will buy back $10 billion to $12 billion of auction-rate securities from retail investors and pay a $125 million fine. Deutsche Bank agreed to buy back roughly $1 billion and pay a $15 million penalty. Goldman Sachs will buy back about $1.5 billion and pay a $22.5 million fine, according to a conference call with the media Thursday afternoon.

Together, through eight settlements, Wall Street firms will buy back some $57 billion in auction-rate securities from retail investors and pay more than $520 million in penalties.

Cuomo's investigation, which already had netted settlements with Citigroup (C Quote), UBS (UBS Quote), Wachovia(WB Quote), Morgan Stanley(MS Quote) and JPMorgan Chase(JPM Quote), has expanded to include roughly 25 banks and brokers, he said.

Individuals, charities and small businesses with assets under $4 million at Merrill will be able to sell us their ARS as of Oct. 1, according to the settlement. In addition, the firm will move up the date to purchase the securities held by its remaining retail clients -- which it voluntarily agreed to do earlier this month -- from Jan. 15 to Jan. 2. All Merrill clients can sell back securities to the firm through Jan. 15, 2010.