Tuesday, September 16, 2008
NASAA announced that a settlement in principle has been reached between Credit Suisse Securities (USA) LLC and state securities regulators, which will provide relief for the firm’s clients who have had their funds frozen in the auction rate securities (ARS) market. The settlement is the result of an investigation of the firm led by the Securities Division of the North Carolina Department of the Secretary of State into allegations that the firm misled clients by falsely assuring them that ARS securities were as safe and liquid as cash. The ARS markets froze in February this year, triggering complaints from investors who could not withdraw money from their accounts.
Under the terms of the settlement, Credit Suisse agreed to buy back at par value by December 11, 2008 all auction rate securities purchased through the firm by individual investors since February 14, 2008 that have not been auctioned. Under terms of the settlement, “individual investors” include all individuals, legal entities forming an investment vehicle for family members, charities and non-profits, and small- to medium-sized businesses with up to $10 million in accounts with Credit Suisse.
The settlement agreement also calls for Credit Suisse to:
Fully reimburse all individual investors who sold their auction rate securities at a discount after the market failed;
Consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by individual investors as a result of not being able to access their funds;
Undertake to expeditiously provide liquidity solutions to all institutional investors; and
Pay to the states civil penalties of $15 million.
In consideration of the settlement, the states will agree to terminate their investigation of Credit Suisse’s marketing and sale of auction rate securities to individual investors.