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New York may sue Merrill

The Associated Press
August 21, 2008 at 12:58 PM EDT

NEW YORK — New York Attorney General Andrew Cuomo said Thursday he'll file a lawsuit against Merrill Lynch & Co. over its role in selling auction-rate securities if an agreement isn't reached by the end of the day.

Mr. Cuomo, who along with other regulators has reached $42-billion (U.S.) worth of settlements with five major Wall Street banks, said talks with the world's largest brokerage were at an impasse.

He said his office had given Merrill a five-day warning that it planned to take legal action; the warning expires Thursday. The attorney general pledged to file a suit in New York State Supreme Court by Friday morning.

“Enough is enough,” Mr. Cuomo told The Associated Press in an interview. “Delay doesn't work as a tactic. I want them to come in quickly and resolve this expeditiously.”

Wachovia agrees to buy back $8.5-billion in auction-rate securities
Merrill Lynch earlier this month agreed to buy back an estimated $12-billion in auction-rate securities, though the company said it has already been buying back the debt. Merrill Lynch's plan was on a voluntary basis and put no set timetable on the transactions.

Mr. Cuomo said he wants the investment bank to buy back the securities within a set period of time, and to also pay fines for having pitched them as safe investments to customers. A spokesman for Merrill Lynch declined to comment.

“The main point is the timing of how quickly they offer the buy backs to the investors,” Mr. Cuomo said. “We want that done quickly, and they had a voluntary time frame that was not acceptable.”

The investigations are examining how brokerages sold auction-rate securities before the $330-billion market collapsed in February. No one that has settled has admitted wrongdoing.

The auction-rate securities market involved investors buying and selling instruments that resembled corporate debt, but the interest rates on the investments were reset at regular auctions, some as frequently as once a week. A number of companies and retail clients invested in the securities because they could treat their holdings almost like cash.

But the market collapsed in February amid the downturn in the broader credit markets. Regulators have been investigating the meltdown in the market to determine who was responsible and whether banks knowingly misrepresented the safety of the securities when selling them to investors.

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