The U.S. Securities and Exchange Commission finalized settlements with Citigroup Global Markets, Inc. and UBS Securities LLC and UBS Financial Services, Inc. to resolve charges that the firms misled investors regarding the liquidity risks associated with auction rate securities that they underwrote, marketed and sold.

In August, the SEC’s Division of Enforcement announced preliminary settlements with Citi and UBS. Today, it finalized those agreements, which will provide nearly US$30 billion in liquidity to customers who invested in auction rate securities before the market for those securities froze in February. The settlements, which are subject to court approval, will restore approximately US$7 billion in liquidity to Citi customers who invested in ARS, and US$22.7 billion to UBS customers who invested in ARS.

Without admitting or denying the SEC’s allegations, Citi and UBS agreed to be permanently enjoined from violations of the broker-dealer fraud provisions and to comply with a number of undertakings.

Both firms also face the prospect of financial penalties to the commission. After the buy back periods are substantially complete, the commission may consider imposing a financial penalty against them based on the traditional factors it considers for penalties and based on whether the individual firm has fulfilled its obligations under its settlement agreement.

“Today’s settlements are the largest in SEC history, and represent the largest return of customer money in the agency’s 75 years,” said SEC chairman Christopher Cox. “Every one of the investors covered by these settlements will be able to receive 100 cents on the dollar on their ARS investments.”

Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement, said, “The SEC will continue to aggressively investigate whether other broker-dealers and individuals have failed to disclose to investors material risks about ARS that they marketed and sold. We also look forward to finalizing the four other settlements-in-principle that the Division has entered into with Bank of America, RBC Capital Markets, Merrill Lynch and Wachovia.”