Montana Commissioner of Securities and Insurance Monica J. Lindeen has announced a settlement with Goldman, Sachs Inc. Under the agreement, Goldman Sachs has agreed to immediately repurchase from Montana investors the $25.65 million in auction rate securities it sold before the market for the securities froze in February 2008. Goldman Sachs will also pay a $75,000 fine that will be deposited to the state’s general fund.
The settlement resolves a multiâ€state investigation into allegations that Goldman Sachs misled investors regarding the liquidity risks associated with auction rate securities (ARS) that they underwrote, marketed and sold. According to complaints received from investors throughout Montana, Goldman Sachs misrepresented to customers that ARS were safe, highly liquid investments that were comparable to money markets. In late 2007 and early 2008, investors alleged Goldman Sachs knew that the ARS market was deteriorating and began purchasing additional inventory to prevent failed auctions.
Auctionâ€rate securities are preferred shares or debt instruments such as corporate or municipal bonds. They have a longâ€term maturity and are sold at monthly or weekly auctions, and until recently were treated by many investors as cash investments. However, the auctionâ€rate security market collapsed, bringing auctions to a halt and leaving investors illiquid investments.
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