Wall Street Nearing Accord On Auction-Rate Securities

• On Wednesday August 13, 2008, 1:38 pm EDT

Wall Street banks and brokerages are near a global settlement with regulators over allegations that they misled investors over the sale of auction-rate securities, CNBC has learned.

A settlement, which could be announced as early as today, would involve such giants as Merrill Lynch (NYSE: mer), Wachovia (NYSE: wb), Morgan Stanley (NYSE:MS - News). JP Morgan Chase (NYSE: jpm), Goldman Sachs (NYSE: gs) and Lehman Brothers (NYSE: leh).

State and federal regulators have been investigating whether brokerages and banks falsely told clients that auction-rate securities-a $330 billion market of long-term debt instruments that pay yields reset through weekly or monthly auctions-were as safe and liquid as cash.

The Wall Street firms have agreed in principle to a settlement, where they would pay a fine and reimburse clints who bought the securities. The settlement has not been signed off on by all the state and federal regulators, however.

The settlement would mirror those already reached with Citigroup (NYSE:C - News) and UBS (NYSE:UBS - News), according to the office of New York Attorney General Andrew Cuomo.

Combined, the banks agreed to pay $250 million in fines and will repurchase about $27 billion of the debt from their clients.

Cuomo's office, which has invoked the state's powerful Martin Act, has said it wants all banks and brokers to make tens of thousands of U.S. investors whole by repurchasing all of the debt at face value.

-Reuters contributed to this report.