June 4 (Bloomberg) -- New York Attorney General Andrew Cuomo ended his criminal investigation of six investment banks’ auction-rate bond sales practices, saying they abided by last year’s agreements to buy back the securities from individuals.

The announcement covers Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley, all of New York. The three other banks, Charlotte, North Carolina-based Bank of America, Deutsche Bank AG. of Frankfurt, and RBC Capital Markets of Toronto, also reached final settlements with the U.S. Securities and Exchange Commission, the agency said.

The attorney general last year reached agreements with 11 banks he accused of improperly describing the securities as cash equivalents and not telling investors about the risk they might be stuck holding the bonds if interest-rate setting auctions failed. The 11 banks said they would pay $572.5 million in penalties under terms reached with Cuomo and 12 state securities regulators who joined the investigation.

The settlements “provided billions to cash-strapped consumers and give investors the confidence that regulators are looking out for their interest,” Cuomo said in a statement. The resolution called for banks to buy back $61 billion of the bonds from individuals, and provide unspecified help to companies and not-for profit groups that held the securities, he said.

Banks stopped their years-old practice of voluntarily buying the bonds at auction to help control interest rates in February 2008, when the $330 billion market collapsed. At that time, the firms wanted to conserve cash and capital as losses on subprime mortgages grew. Investors shunned the securities after ratings were reduced for insurance companies backing the bonds.

Amid the collapse, bondholders were left holding securities they couldn’t sell and issuers such as the Port Authority of New York and New Jersey paid penalty rates as high as 20 percent.

Aiding Individual Investors

The agreements describe the notification and other efforts banks must make to buy back auction-rate bonds from individual investors, cover losses of those who sold at less than face value and pay interest costs of investors who borrowed money when they couldn’t sell the bonds. Those agreements were made last year, though the investigations didn’t end until ‘assurances of discontinuance’ were signed.

The banks are also required by the agreements to make unspecified efforts to help corporations and charitable groups sell their auction-rate holdings. Those efforts call for banks to work with regulators “to expeditiously provide liquidity solutions,” which the banks are to describe in quarterly reports until at least the end of this year.

The agreement also requires banks to repay fees paid by some auction-rate issuers who came to market in the six months before the market collapsed, and then turned to the same banks to refinance the bonds with new securities. Those payments are due within 30 days of the agreements.

Earlier Agreements

The banks didn’t admit or deny the charges described in the “assurances of discontinuance” to which they and Cuomo agreed. The attorney general and securities regulators in other states announced settlements with banks beginning in August 2008.

The banks agreed to continue abiding by terms of the agreements. Both Cuomo and the SEC said they reserve the right to revive their complaints if banks fail to comply with the agreements.

Deutsche Bank agreed to help clients unload as much as $1.3 billion in auction-rate debt to settle the SEC’s civil complaint. It had reached a similar deal with Cuomo in August. The SEC announced preliminary settlements with Bank of America and RBC last year.

“We are pleased to have reached these final agreements, which we have been implementing since the initial announcement last August,” Deutsche Bank said in a statement.

‘Pleased’ to Settlement

Michael DuVally of Goldman Sachs and Brian Marchiony of JPMorgan Chase declined to comment.

“Morgan Stanley is pleased to finalize this matter, said Jennifer Sala, a spokeswoman.

Dozens of auctions continue to fail with banks still collecting fees for conducting the sales every seven, 28 or 35 days, according to data compiled by Bloomberg. About $176 billion of the securities remain.

Cuomo said his probe continues at other banks. The SEC said its investigation of the auction-rate market is also proceeding.

To contact the reporter on this story: Michael Quint in Albany, New York, at mquint@bloomberg.net.

Last Updated: June 4, 2009 00:01 EDT