Wednesday, June 29, 2011

SEC Press Release: Auction Rate Securities

SEC Charges Raymond James for Auction Rate Securities Sales Practices 

The U.S. Securities and Exchange Commission (SEC) issued a press release today announcing that it had
charged Raymond James & Associates Inc. and Raymond James Financial Services Inc. for making inaccurate statements when selling auction rate securities (ARS) to customers.

According to Registered Rep., Raymond James has agreed to repurchase $300 million of ARS from customers who bought ARS prior to the collapse of the ARS market in February 2008 within the next 30 days. The firm had been accused of misleading investors into thinking that ARS were safe and liquid alternative investments to money-market funds.

Auction rate securities (ARS) are long-term floating rate securities whose coupon payments are determined at auctions that are typically held every 7 to 35 days and are issued widely by a diverse range of institutions such as closed-end mutual funds, municipalities and student loan trusts. They are therefore long-term securities with potentially short-term rates. Broker dealers marketed ARS as liquid, short-term cash equivalents. However, ARS auctions failed en masse in February 2008 and proved to be illiquid and unsellable in the short-term.

SLCG was recently hired by North Carolina Department of the Secretary of State to work out liquidity solutions to those ARS that are still illiquid and unredeemed. SLCG has also published an in-depth study on ARS at our dedicated website.

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