DOW JONES NEWSWIRES
Three firms will pay a total of $600,000 in fines to the
Financial Industry Regulatory Authority to settle charges relating
to the sale of auction-rate securities.
Northwestern Mutual Investment Services LLC, City Securities
Corp. and Fifth Third Securities Inc. also agreed to repurchase a
total of more than $128 million in ARS from customers. The firms
neither admitted nor denied the charges.
ARS are debt instruments whose interest rates are meant to be
reset periodically at daily, weekly or monthly auctions. But as
those auctions began failing in February 2008, interest rates rose
while investors were locked into long-term investments that had
been promoted as safe and liquid.
Finra said each firm sold ARS using ads and marketing materials
that were not fair and balanced or that failed to adequately
disclose the risks of ARS.
"The failure of firms to adequately disclose the risks
associated with auction rate securities left customers unprepared
for the failure of the auction market last year and the resulting
consequences," said Susan L. Merrill, Finra's chief of
enforcement.
So far, Finra has reached ARS settlements with 12 firms,
imposing a total of $3.2 million in fines and guaranteeing the
return of more than $1.3 billion to investors. It continues
investigations of several other firms.
In addition to Finra, the Securities and Exchange Commission and
dozens of states have reached settlements with the nation's largest
financial institutions to resolve charges they misled investors
about the liquidity risks of the ARS they underwrote. All told,
more than $60 billion in buyback agreements have been reached with
state and federal officials.
In the latest case, Northwestern Mutual - part of the family of
companies of the same name - was fined $200,000 and agreed to
repurchase about $103 million in ARS. City Securities, which calls
itself Indiana's oldest and largest independent, full-service
investment bank, was fined $250,000 and will repurchase $13.1
million. Fifth Third Securities, owned by Fifth Third Bancorp
(FITB), was fined $150,000 and will repurchase $11.9 million.
Finra noted that Northwestern Mutual launched an offer in
September 2008 to buy back ARS from all customer accounts and has
completed its repurchases.
-By Kathy Shwiff, Dow Jones Newswires; 212-416-2357;
Kathy.Shwiff@dowjones.com