By now, federal regulatory authorities must wonder who’s in charge, Washington regulators or New York State Attorney General Andrew Cuomo.

Cuomo previously set nation-wide standards for appraisals in his settlement of a lawsuit against Fannie Mae and Freddie Mac and cleaned up the student loan market ahead of federal action. Now he has reached a landmark, multi-billion dollar agreement with two Citigroup affiliates to settle allegations that the big New York bank was making misrepresentations in the marketing and sales of auction rate securities. Citigroup marketed and sold auction rate securities as safe, cash-equivalent products, when in fact they faced increasing liquidity risk.

Under Cuomo’s settlement, Citigroup agreed to buy back all illiquid auction rate securities from all Citigroup retail customers, charities, and small to mid-sized businesses. These customers — 40,000 or so nationwide — have been unable to sell their securities since February 12, 2008, according to Cuomo. Their securities are worth more than $7 billion.

Citigroup will also:

• Fully reimburse all retail investors who sold their auction rate securities at a discount after the market failed;
• Consent to a special, public arbitration process to resolve claims of consequential damages suffered by retail investors as a result of not being able to access their funds;
• Promptly provide liquidity solutions to all other institutional investors; and
• Reimburse all refinancing fees to any New York State municipal issuer who issued auction rate securities through Citigroup since August 1, 2007.

In addition, Citigroup will pay to the State of New York a civil penalty in the amount of $50 million. Cuomo says this sum punishes Citigroup’s marketing misconduct, as well as its failure to properly respond to the Attorney General’s earlier subpoena.

Citigroup will also pay a separate civil penalty of $50 million to the North American Securities Administrators Association, which has been conducting its own investigation into auction rate securities practices.