Dow settles another ARS case

By Keith Loria | Nov 9, 2010


NEWARK, N.J. (Legal Newsline) - New Jersey Attorney General Paula Dow announced on Tuesday that she has signed a consent order that requires an investment firm to repurchase auction-rate securities from New Jersey clients.

Stifel Nicolaus & Company, Inc., allegedly had its securities dealers sell ARS without disclosing known risks of the ARS market. The company allegedly marketed ARS as safe, liquid and cash-like investments, when, in fact, they are long-term investments subject to a complex auction process that failed in early 2008, revealing illiquidity and lower interest rates than investors were promised.

The suit alleged that Stifel Nicolaus securities dealers failed to adequately inform customers on the risks associated with buying ARS investments.

"The Bureau of Securities continues to seek relief for investors stuck with these unsuitable and illiquid products," New Jersey Bureau of Securities Chief Marc B. Minor said.

"State securities regulators joined forces to resolve this matter on behalf of New Jersey investors. The states are on the frontlines in protecting investors and their hard-earned savings."

Under terms of the agreement reached with Dow's Bureau of Securities, Stifel Nicolaus will repurchase $5.4 million in ARS sold to retail investors in New Jersey.

The order also requires Stifel Nicolaus to pay a $15,381.10 civil penalty to New Jersey, which represents the state's pro-rata share of a settlement negotiated by a multi-state task force of state regulators formed by the North American Securities Administrators Association.

Early in 2008, state offices 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 systematically misled investors when placing them in auction rate securities.

This is the seventh such settlement that the Bureau has reached with firms that sold ARS to investors in the state, resulting in more than $1 billion in assets repurchased by the firms.

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