Bank New York Mellon Dec 2011

 

Dec. 22 (Bloomberg) -- Bank of o f New York Mellon Corp. will pay $1.3 million million to New York, Texas and Florida to resolve a probe into manipulative trading of auction-rate auct ion-rate securities. The joint investigation by the Texas State Securities Board, the Florida Office of Financial Regulation and New York Attorney General Eric Schneiderman was tied to the actions of Mellon Financial Markets as an intermediary broker on o n behalf of Citizens Property Insurance Corp. of  Florida, according to statements from Schneiderman's office and the Florida and Texas agencies. The settlement includes penalties, fees and costs. co sts. Auction-rate securities are municipal bonds, corporate bonds and a nd preferred stocks whose rates of  return are periodically reset through auctions. auct ions. The market for the securities collapsed in February 2008 after major dealers withdrew their support for the auctions, causing most to fail. "The manipulative trading of auction-rate auct ion-rate securities securities in New York will not be tolerated under any circumstances," Schneiderman said in a statement. stat ement. "My office will continue to protect the integrity of New York's global financial markets at all a ll costs." Mellon Financial in January and February Februar y 2008 enabled Citizens Pro Property perty to buy large quantities of its own auction- rate securities by placing bids in its own auctions as if it were an independent third-party buyer, Schneiderman's office said in a statement. st atement. Help From Mellon Citizens Property knew that broker-dealers who were managing the securities would have rejected the bids and asked for help from Mellon Financial Markets, which agreed to submit the trades to help the Florida insurer avoid detection, Schneiderman's office said. Citizens Property's bids were below market rates and resulted in the auctions' clearing at rates lower than they would have had the insurer not intervened, Schneiderman's office said. Investors earned $6.7 million million less in interest than they would have if Citizens hadn't joined the auctions, the Texas State Securities S ecurities Board said. Mellon Financial "traders and their managers understood that bidding, CPIC's bidding set clearing rates lower than they would have been in the absence of such and thatwould this would be  both detrimental and objectionable to other ot her investors bidding on or holding CPIC's auction rate securities," Schneiderman's office said. Fees Earned Mellon Financial earned about $300,000 in fees from the conduct, Schneiderman's office and the Texas board said. Florida will receive $400,000 $400, 000 of the settlement and T Texas exas will receive $500,000, which will go to the state's general revenue fund. At least one broker at Mellon Mellon Financial described the trading scenario as "unique" and brought the issue to his supervisor, who didn't seek legal advice or discuss it with the company's compliance department, the Texas T exas board said.

 

After the market collapsed, a broker-dealer, bro ker-dealer, suspicious that Mellon Financial was bidding for  Citizens, said orders wouldn't be accepted on behalf of a company bidding on its own securities, the Texas agency said. Traders continued the practice until unt il Bank of New York Mellon ordered it to stop, authorities said. One trader said the activi act ivity ty allowed Citizens C itizens to "gouge people," the Texas T exas State Securities Board said. "BNY Mellon Capital Markets is pleased to have resolved this matter, which centered o on n the isolated conduct of three individuals who are no longer with the company," Ro Ron n Sommer, a Bank  of New York Mellon spokesman, said in a statement. Two Entities Mellon Financial Markets was a separate financial entity at the time the activity occurred, the t he Texas agency said. It would be inappropriate for Citizens Property Pro perty Insurance to comment on the settlement, Christine Ashburn, director of legislative and external affairs for the Tallahassee-based Ta llahassee-based company, said in an e-mail. "It is important to recognize that Citizens was vigilant in obtaining guidance from outside legal counsel prior to engaging in these transactions," Ashburn said. "We continue to believe that our  actions were legally permissible, and we remain re main committed to providing any information regulators may request." --With assistance from David Mildenberg in New York. Editors: Ed itors: Mary Romano, Charles Carter  To contact the reporter on o n this story: Chris Dolmetsch in New York at [email protected] [email protected].. To contact the editor ed itor responsible responsible for this story: Michael Hytha at [email protected]. [email protected]. Read more: http://www.sfgate.com/cgi bin/article.cgi?f=/g/a/2011/12/22/bloomberg_articlesLWMMDQ1A74E9.DTL#ixzz1iMGI6uXp  bin/article.cgi?f=/g/a/2011/12/22/bloomberg_articlesLWMMDQ1A74E9.DTL#ixzz1iMGI6uXp