Four big banks face a U.S. Securities and Exchange Commission probe of their auction-rate bond operations, a securities filing shows.
The banks -- Citigroup Inc., Merrill Lynch & Co., Wachovia Corp. and Switzerland's UBS AG -- are arranging $435 million of auction-rate shares being offered by Eaton Vance Floating-Rate Income Trust. The trust is run by Eaton Vance Corp., which oversaw $89.5 billion of assets as of July 31.
The offering's prospectus, filed with the SEC on Wednesday, said the commission asked the banks to disclose voluntarily "certain of their practices in connection with auction-rate securities." The banks are cooperating with the SEC in providing the requested information, the prospectus said.
Calls to the banks were not immediately returned.
There are about $200 billion of outstanding auction-rate bonds. These are particularly popular in the municipal bond market, because they can allow issuers to sell long-term securities with lower rates more typical of shorter-term debt.
U.S. regulators are concerned that Wall Street firms may be tipping off favored clients as to what they need to bid to win a portion of a sale.
Auction-rate investors buy long-term securities, and from time to time bid through brokers to reset the interest rate in a "Dutch auction," in which the entire offering is sold at the lowest price, and highest yield, that the sellers will accept.
Eaton Vance is based in Boston, Citigroup and Merrill Lynch in New York, and Wachovia in Charlotte, North Carolina.