Auction-rate securities seemed like a great deal at the time. Debt instruments or preferred stock that reset through regular auctions, these instruments were widely sold as a way to push up returns without sacrificing much liquidity. Many investors say they were led to believe that they could easily get out because Wall Street would support the auctions in case of a crisis. But when push came to shove in February, the big underwriters stepped back and the $300bn market collapsed.

Now Citigroup, the largest seller of ARS, has agreed to buy back at par $7.5bn worth of these frozen instruments from 38,000 retail investors and pay damages to those who have already sold at a loss. The bank has also committed to try to liquidate $12bn in frozen securities that were sold to institutional investors by the end of 2009. Citigroup will also pay $100m in penalties to New York and other state securities regulators. The Securities and Exchange Commission is withholding judgment whether to add a federal penalty until the process is complete.