Goldman, Merrill, Deutsche Bank Settle Auction-Rate Probe

August 21, 2008 7:16 p.m. EST

New York, NY (AHN) - On Thursday, Goldman Sachs, Merrill Lynch and Deutsche Bank became the latest financial institutions to settle with regulators for their part in questionable sales practices for auction-rate securities.

Goldman Sachs agreed to buy back $1.5 billion in auction-rate securities and pay a $22.5 million civil penalty. Deutsche will buy back $1 billion in the securities and pay a $15 million civil penalty.

Merrill Lynch plans to begin its buy back of $12 billion in securities on Oct. 1. The broker will also pay a $125 million civil penalty.

The auction-rate probe, which was begun five months ago by New York Attorney General Andrew Cuomo, has now totaled $50 billion worth of buy backs spread among eight different financial institutions.

"This has been a great day of progress," Cuomo said, according to the Associated Press. "We have a number of banks that are still under investigation, and we are obviously having conversations about resolution. The one thing the people want is their money back quickly," he added.

Investigations are still being conducted at many other financial institutions. Bank of America, Charles Schwab, Fidelity Investments and E-Trade are some of the more prominent names.

One of the biggest items being scrutinized is the sales pitch and literature used in marketing the auction-rate securities. Investors were led to believe these securities were completely safe, similar to a money market. However, the collapse of the auction-rate market proved that was not the case.