The New York Attorney General and America’s Securities Exchange Commission has laid to rest the case that resulted in financial firms UBS and Citigroup agreeing to pay nearly $30 billion to tens of thousands of customers who invested in auction rate securities.

UBS agreed to pay $22.7 billion and Citigroup $7 billion to clients who invested in ARS before the market for those securities froze in February.

“Today’s settlements are the largest in SEC history, and represent the largest return of customer money in the agency’s 75 years,” said SEC Chairman Christopher Cox.

The SEC charged that both firms misled investors regarding the liquidity risks associated with auction rate securities that they underwrote, marketed and sold.

Other ARS settlements agreed to in principle this year included Bank of America, RBC Capital Markets, Merrill Lynch and Wachovia.

According to the SEC’s complaints, in late 2007 and early 2008, UBS and Citi knew that the ARS market was deteriorating, causing the firms to have to purchase additional inventory to prevent failed auctions.

The SEC said Citi and UBS failed to make their customers aware of these risks and in mid-February decided to stop supporting the ARS market, leaving “tens of thousands of Citi and UBS customers holding tens of billions of dollars in illiquid ARS”, the SEC said in a statement.

The SEC also stated both firms may face the prospect of additional financial penalties. After the buy back periods are substantially complete, the SEC said it may consider imposing a financial penalty against Citi and/or UBS based on whether the respective firms have fulfilled their obligations under its settlement agreement.

“This is a historic victory for these investors, who have generally been so hard hit in recent months,” said New York Attorney General Andrew Cuomo.

“Not only are we returning liquidity to these investors, we are also restoring investor faith in their ability to invest with the assurance that authorities will protect their interests,” he said in a statement.