JP Morgan Chase and Morgan Stanley agreed to collectively buy back $7 billion of auction rate securities and pay millions of dollars in fines to settle a case brought against the brokerage firms by New York Attorney General, Andrew Cuomo.

A breakdown of the amount securities each firm agreed to buy back wasn’t immediately available, however Mr Cuomo said in a statement Morgan Stanley would pay $35 million and JP Morgan would pay $25 million in civil penalties following the investigation.

A Morgan Stanley spokesperson said this when asked to comment on the case: "We are pleased to have settled this mater."

The announcement closely followed agreements by Citi and UBS to buy back the securities after regulators found clients were sold into the illiquid investments as if they were safe alternatives to cash.

Mr Cuomo confirmed his office is currently in discussions to settle a similar case with Merrill Lynch.

UBS had the largest commitment and agreed to buy back $18.6 billion in securities and pay a fine of $150 million.

The state’s investigation estimated that thousands of investors were left holding $27 billion worth of securities they could not sell after the widespread failure of the auction rate securities market this past February.

"For several months, the SEC has worked very closely with the states as we have investigated these cases… Our investigations are ongoing, and include both potential corporate and individual violations of the federal securities laws,” said Linda Thomsen, SEC Enforcement Division director.