Wachovia repurchases $441M in auction rate securities

Bryan Cohen Oct. 4, 2011, 2:00pm


NEWARK, N.J. (Legal Newsline) - New Jersey Attorney General Paula Dow announced consent orders on Tuesday requiring two financial investment companies to repurchase auction rate securities from New Jersey clients.

Wachovia Securities LLC and Wachovia Capital Markets LLC 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 while Raymond James & Associates Inc. and Raymond James Financial Services Inc. will repurchase $16.7 million in ARS from New Jersey investors and pay $35,000 in civil penalties as part of the consent order.

The Bureau of Securities within the Division of Consumer Affairs signed the consent orders with Wachovia and Raymond James to settle allegations that the companies did not disclose that ARS -- which were marketed and sold to investors as safe, liquid and cash-like investments -- were actually long term investments subject to a complex auction process that failed in 2008.

At the time of the mass auction failures in February 2008, Wachovia's New Jersey customers held approximately $900 million in ARS. The bureau alleged that Wachovia failed to reasonably supervise its agents.

"When financial firms don't disclose all known risks to investors, they are violating our state securities law and the trust of their clients," Dow said. "In settling these cases, we're stressing the importance of proper disclosure going forward."

The consent orders are the 14th and 15th settlements that the bureau has reached with firms that sold ARS to New Jersey investors, with approximately $4 billion worth of those assets 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 also paid $22.4 million in civil penalties to the state.

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