Raymond James on Thursday agreed to a multi-state settlement that will require the firm to buy back $300 million in auction rate securities (ARS) it sold to clients prior to the collapse of the ARS market in February of 2008.
But will it stick? The settlement comes on the heels of a decision by a U.S. judge Tuesday to reject SEC claims that Morgan Keegan had misled investors about the risks of the ARS it sold them. According to SEC claims, Raymond James “willfully violated” securities laws by improperly marketing and selling ARS to customers as safe and liquid alternatives to money-market funds when they were not.
The investigation into Raymond James is part of an ongoing regulatory investigation into the sale of ARS. The SEC has previously announced ARS settlements with Citigroup, UBS, Wachovia, Bank of America, RBC Capital Markets, Deutsche Bank and TD Ameritrade, which resulted in more than $67 billion being returned to clients. In addition, some individual financial advisors have been charged.
Under the terms of the SEC’s settlement, and without admitting or denying the SEC’s allegations, Raymond James agreed to extend offers to repurchase auction rate securities from its retail customers nationwide within the next 30 days. Investors will have 75 days to respond to the offer.
In addition, Raymond James agreed reimburse the interest on loans ARS customers took from the firm to compensate for the lack of liquidity in the ARS investment, to compensate some ARS customers who sold their ARS below par, to participate in a special arbitration process with customers who claim additional damages and to establish a toll-free assistance line and public Internet page for customers who have questions about the terms of the settlement.
A number of states cooperated in the investigation of Raymond James, including Texas, Florida, Indiana, New York, North Carolina, Pennsylvania and South Carolina. State securities regulators formed a 12-state task force in early 2008 to investigate whether the nation’s financial firms had systematically misled investors about the risks of ARS.
