The Financial Industry Regulatory Authority (FINRA) has settled charges relating to the sale of auction rate securities (ARS) with four companies. FINRA, an independent regulator of the securities industry, settled with NatCity Investments Inc. of Cleveland, which was fined $300,000; M&T Securities Inc. of Buffalo, which was fined $200,000; Janney Montgomery Scott LLC of Philadelphia, which was fined $200,000 and M&I Financial Advisors Inc. of Milwaukee, which was fined $150,000.
As a part of the settlement, the companies agreed to initiate or complete offers to repurchase the securities sold to their customers where the customers’ auctions of the securities had failed. Each company is required to provide notice to its eligible customers promptly. Repurchases must begin no later than 30 days after the settlement is approved and must be completed no later than 60 days after settlement approval.
Some auction rate securities became illiquid and basically worthless when auctions froze in February 2008. FINRA said its investigation found that some companies failed to adequately disclose to customers the potential for auction rate securities auctions to fail and the consequences of such failures. Some companies also failed to establish and maintain a supervisory system reasonably designed to achieve compliance with the securities laws and FINRA rules concerning the marketing and sale of the securities. Susan L. Merrill, FINRA’s chief of enforcement, observed:
Firms have an obligation to use fair and balanced marketing materials when selling any security, including auction rate securities. This includes full disclosure of liquidity risks, which unfortunately became a reality in the ARS market last year.
The organization’s priority was to assure investors’ access to the millions of dollars they invested in ARS. In addition to individual retail ARS investors, the buyback offers were made to nonprofit charitable organizations and religious corporations or entities, trusts, corporate trusts, corporations, pension plans and educational institutions. To date, FINRA has concluded final settlements with nine companies, imposing a total of $2.6 million in fines and guaranteeing the return of more than $1.2 billion to investors.
Investigations continue and are ongoing at several other companies. According to FINRA, Sunburst Investment Services Inc. and Sunburst Robinson Humphrey Inc., both of Atlanta, haven’t followed through on previously-announced settlements with FINRA. The investigation by FINRA into both firms’ ARS-related activities is continuing. If you need additional information on ARS Litigation you should contact either Jay Aughtman or Scarlette Tuley at 800-898-2034 or by email at Jay.Aughtman@beasleyallen.com or Scarlette.Tuley@beasleyallen.com.
Source: Associated Press
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.