Citigroup Inc., the largest US bank by assets, agreed to buy back or help clients unload $19.5 billion in auction-rate securities and pay a $100 million fine to settle US regulatory claims it improperly saddled customers with untradeable bonds. (See: Citigroup becomes the latest Wall Street entity to be charged with securities fraud)

Citigroup will buy back about $7.5 billion in securities from 40,000 individual customers, charities and small businesses under a settlement with New York State Attorney General Andrew Cuomo, the Securities and Exchange Commission (SEC) and a group of states, led by Texas, the SEC said in a statement today.

It must also start ''restoring liquidity'' to more than 2,600 institutions holding about $12 billion of the instruments, the SEC said. Additionally, the bank will pay a $50 million penalty to New York state and a separate $50 million civil penalty to the North American Securities Administrators Association.

"Today's settlement sends a resounding message to the entire auction-rate securities industry," said Cuomo. "This type of deceptive behavior will not be tolerated and we will actively seek justice on behalf of investors.

"Our goal is simple: to get investors back their money, and that's exactly what this deal does," he added.

Citigroup is the first Wall Street firm to settle federal claims amid a probe into how banks sold auction-rate securities before the $330 billion market collapsed in February. The accord may set a precedent for negotiations with firms including UBS AG and Merrill Lynch, which have been named in civil complaints by Cuomo and authorities in Massachusetts. (See: New York attorney general charges UBS with securities fraud and Merrill Lynch charged with auction rate securities fraud in Massachusetts)

''This is the first settlement in what is likely to be a number of settlements of the auction rate securities matters with all the major firms,'' Texas State Securities Commissioner Denise Voigt Crawford said. ''Firms that don't settle are going to be frowned upon by investors.''

"Today's agreement in principle provides real relief to investors," said Linda Thomsen, the SEC enforcement chief.

Citigroup, as part of its settlement, also agreed to reimburse refinancing fees to municipal borrowers that issued auction-rate securities through the bank since 1 August 2007, according to a statement released by the New York attorney general.

New York-based Citigroup neither admitted nor denied allegations of wrongdoing.

''We are committed to continuing the many initiatives that we believe will provide liquidity to our auction-rate clients,'' said Arthur Tildesley, chief administrative officer for Citigroup's wealth-management division.

Securities eligible for the buyback have a face value of $7.3 billion and a market value about $500 million less than the purchase price, the bank said in a statement. The capital impact on its balance sheet will be ''de minimis,'' it said.

Other firms that sold the securities are also nearing the completion of talks to resolve regulatory probes, a person involved in the negotiations said yesterday.

UBS, the biggest Swiss bank, is in talks with New York, Massachusetts, Texas and the SEC, a person familiar with those negotiations said yesterday. Asked about the talks, UBS spokeswoman Karina Byrne said, ''We have consistently worked with and are engaged in active dialogue with all our regulators.''

Auction-rate securities are long-term debt that functioned as short-term investments that investors could sell at weekly or monthly auctions when interest rates reset.

Municipalities frequently tapped the $330 billion market to borrow money, but it collapsed earlier this year, sending yields on some auction-rate securities soaring and leaving investors unable to sell the assets.

As the global credit crunch took hold, many of these securities were effectively frozen in owners' accounts as the market in which they were auctioned came to a virtual standstill in February.

(See: Morgan Stanley joins Citigroup, UBS and Merrill in buying back auction-rate securities)