The Securities and Exchange Commission on Wednesday announced a settlement with broker-dealer Raymond James Financial involving $350 million worth of auction rate securities which the regulatory agency claimed were marketed and misrepresented by the firm's reps as “safe, liquid alternatives” to money market funds and other highly liquid investment vehicles.
In fact, in the 2008 financial crisis, these investments lost much of their value. The SEC has been pursuing a number of financial services firms over the sale of ARS products and says that to date it's garnered restitution of more than $67 billion for investors.
Under terms of the settlement, Raymond James Financial does not admit any guilt. The firm is not being fined by the SEC, but is paying $1.75 million in fines to state regulators of Florida and Texas over the ARS issue.
Raymond James claims that the outstanding amount to be returned to investors who lost money on their ARS investments is $280 million, the lower figure being the result of redemptions that have already occurred. The company announced a $50 million charge against its earnings in the most recent quarter related to the settlement.
Eric Bustillo, regional director of the SEC in Florida, where Raymond James is headquartered, said that the company’s brokers were selling ARS products throughout its service area. “Inadequate information was being given to investors about the true nature of these products,” he says the agency’s order declares. “They were presented as being akin to money market securities.”
Raymond James has 5,300 advisers handling some 1.9 million accounts in 2,400 locations throughout the U.S. and Canada. The company says it manages client assets worth more than $282 billion.
Under the terms of the settlement, Bustillo says Raymond James will be required to make certain “undertakings” to notify affected investor/clients of the settlement, with instructions on how to apply for restitution.
Steve Hollister, a spokesman for Raymond James, said within the next 30 days the company will be sending out notices to clients notifying them that if they think they have a claim for losses from their ARS investments they can seek restitution from Raymond James.
The company will cover the difference between the current and par value of the investments. Information about how to apply is also being posted on the company’s website.