NEWARK
– The New Jersey Bureau of Securities,
within the Division of Consumer Affairs, has
signed Consent Orders requiring Wachovia Securities,
LLC and Wachovia Capital Markets, LLC (“Wachovia”),
and Raymond James & Associates, Inc. and
Raymond James Financial Services, Inc. (“Raymond
James”), to repurchase auction-rate
securities (ARS) from New Jersey clients to
settle allegations that the firms sold ARS
without disclosing known risks of the ARS
market.
Although marketed and sold to investors
as safe, liquid, and cash-like investments,
ARS were actually long-term investments
subject to a complex auction process that
failed in early 2008, causing illiquidity
and significantly lower interest rates than
investors had historically received.
At the time of the mass auction failures
in February 2008, Wachovia’s customers
in New Jersey held approximately $900 million
in ARS. As part of its findings, the Bureau
determined that Wachovia failed to reasonably
supervise its agents. Wachovia will repurchase
$441 million in ARS from New Jersey investors
and pay $3.2 million in civil penalties
to the State under terms of the Consent
Order.
Raymond James will repurchase $16.7 million
in ARS from New Jersey investors and pay
$35,000 in civil penalties, under terms
of its Consent Order with the Bureau.
"When
financial firms don’t disclose all
known risks to investors, they are violating
our state securities law and the trust of
their clients,” Attorney General Paula
T. Dow said. "In settling these cases,
we’re stressing the importance of
proper disclosure going forward."
These Consent Orders represent the 14th
and 15th settlements that the Bureau of
Securities has reached with firms that sold
ARS to New Jersey investors. To date, approximately
$4 billion of these assets have been repurchased
or offered to be repurchased from New Jersey
investors as part of settlements with firms
that marketed and sold these products. The
firms have paid $22.4 million in civil penalties
to the State.
“Consumers
work hard to build up their savings. Their
monies shouldn’t be placed at unnecessary
risk through non-disclosure of all known
facts. These settlements put the financial
industry on notice that we will act to protect
investors, and hold firms accountable when
our securities laws are violated,”
said Thomas R. Calcagni, Director of the
State Division of Consumer Affairs.
The investigation into Wachovia’s
and Raymond James’s role in the sale
of these securities is part of a larger,
state-led effort to address problems in
connection with ARS investments. Early in
2008, state securities regulators began
receiving complaints from investors throughout
the country. As a result, 12 states, including
New Jersey, formed a task force to investigate
whether certain Wall Street firms had misled
investors when selling them auction rate
securities.
“State
securities regulators have collectively
taken on these cases, in our role as the
primary protector of investors within our
borders,” said Abbe R. Tiger, Securities
Bureau Chief. “We’ll continue
to be the investing public’s watchdog
as our Bureau investigators monitor the
industry.”
Bureau of Securities Investigating Attorney
Peter C. Cole led New Jersey’s efforts
in securing these settlements and protecting
Garden State investors.
The Bureau of Securities can be contacted
toll-free within New Jersey at 1-866-I-INVEST
(1-866-446-8378) or from outside
New Jersey at 973-504-3600.
The Bureau's website is located at www.njsecurities.gov