Investment companies buying back auction rate securities

Bryan Cohen May 16, 2011, 12:35pm


NEWARK, N.J. (Legal Newsline) - New Jersey Attorney General Paula Dow announced on Monday that the state's Bureau of Securities has signed final consent orders with two investment companies over auction rate securities.

The agreements settle allegations that Goldman, Sachs & Co., and Wells Fargo Investments Inc., sold ARS without disclosing the known risks of the ARS market.

Under the terms of the settlement, Goldman Sachs has repurchased $25.5 million in ARS sold to New Jersey investors and will pay $959,794 in civil penalties to the state. Wells Fargo has repurchased $1.37 million of the ARS sold to retail investors in New Jersey.

The bureau, part of the New Jersey Division of Consumer Affairs, alleged that Goldman Sachs failed to adequately train and supervise its salespeople to ensure that all the firm's clients were aware of the mechanics of the auction market and possible illiquidity of ARS.

In addition, the bureau alleged that the company never disclosed the increasing risks of owning or purchasing ARS to its customers even as the firm became increasingly aware of rising strains in the ARS market.

The bureau also alleged that Wells Fargo failed to adequately train and supervise its agents who marketed ARS.

"The failure of these firms to disclose known risks ultimately harmed investors who purchased auction rate securities," Dow said. "State law requires disclosure of all material facts to investors, particularly when their hard-earned money is on the line."

The two consent orders are the 11th and 12th settlements the bureau has reached with firms that sold ARS to New Jersey investors. Over $2.8 billion of these assets have been repurchased or offered to be repurchased to date as part of settlements with firms that sold and marketed ARS.

State offices began receiving complaints from investors early in 2008 in connection with ARS investments. New Jersey and 12 other states then formed a task force to investigate the claims as a result.

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San Francisco, CA 94104

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