Monday, April 25, 2011
On April 21 the New Jersey Division of Consumer Affairs, through its Bureau of Securities, announced that it signed final Consent Orders requiring Morgan Stanley and TD Ameritrade to repurchase auction-rate securities (ARS) from New Jersey clients to settle allegations that the firms sold ARS without disclosing known risks of the ARS market.
Under the terms of the settlements, Morgan Stanley, an underwriter of ARS, has agreed to offer the repurchase of $322.7 million in ARS sold to retail investors in New Jersey. Morgan Stanley also will pay $1.56 million in civil penalties to the State, under terms of the Consent Order. As part of its findings, the Bureau determined that Morgan Stanley failed to adequately train all of its brokers and financial advisers about the potential illiquidity of ARS and never disclosed increasing risks of owning or purchasing ARS to its customers even as the firm became aware of increasing strains in the ARS market.
TD Ameritrade, a distributing or “downstream” broker-dealer who sold ARS, has repurchased $16.1 million of the ARS it sold to retail investors in the state. The Bureau found, among other things, that TD Ameritrade’s registered representatives failed to provide customers with adequate and complete disclosures regarding the complexity of the auction process and the risks associated with ARS.