In a settlement with New York State Attorney General Andrew Cuomo and the North American Securities Administrators Association (NASAA), Credit Suisse agreed to buy back nearly half a billion dollars of individual investors’ securities purchases and a $15 million fine. Credit Suisse is Switzerland’s second largest bank. (www.swissinfo.ch)

The settlement concerned sales of auction rate securities (ARMs,). It provides for Credit Suisse to “buy back the securities from individuals, charities and small businesses with accounts valued up to $10 million” according to Swissinfo. Securities brokers often understated the potential risk of ARMs, especially to unsophisticated smaller investors. (www.cfo.com 16 Sep 08)

Cuomo suggested that “The industry is taking responsibility for correcting a problem they helped create, and that’s a good thing,” .

Karen Tyler, president of NASAA, described the Credit Suisse settlement as “another step on the road to recovery for thousands of Main Street investors who have been trapped in the auction rate securities meltdown”.

UBS, Switzerland’s largest bank, similarly settled earlier this year with various American authorities. It announced in August a settlement for customers owning ARMs. UBS, which has seen a dramatic drop of more than forty-three percent in its share value, reserved an additional US$900 million to the US$8.3 billion. Buybacks are planned to start as early as October.

Citgroup, Merrill Lynch, JPMorgan, Chase and others reached similar settlements, all on or before August 15 this year, before the big “meltdown” in the financial markets.

The buybacks of ARMS for smaller investors intensify a closer scrutiny of the necessity or desirability of a federal bailout of illiquid American financial companies.

While the candidates for the presidency stress the potential necessity of such a bailout for the effects on “the small guy” it becomes critical to understand exactly how small investors might be impacted by the potential failures of financial firms.