Sunday, October 23, 2011
NASAA recently announced that a settlement in principle has been reached between E*TRADE Securities LLC and state securities regulators to return approximately $100 million to the firm’s clients who have had their funds frozen in the auction rate securities (ARS) market since 2008. The firm also will pay a $5 million fine. The settlement with E*TRADE is the result of a multi-state investigation led by the Colorado Division of Securities into allegations that the firm misled clients by falsely assuring them that auction rate securities were a safe, liquid alternative to cash, certificates of deposit and money market funds. The ARS markets froze in February 2008, triggering complaints from investors who could not withdraw money from their accounts.
Under the terms of the settlement, E*TRADE agreed to buy back at par value all outstanding auction rate securities purchased through the firm by individual investors before February 2008.
Other terms of the multi-state settlement require E*TRADE to:
- Fully reimburse all individual investors who sold their auction rate securities at a discount after the auction market failed;
- Consent to a special, public arbitration process to resolve claims of consequential damages suffered by individual investors who were unable to access their funds;
- Maintain a dedicated toll-free telephone assistance line, website and email address to provide information about the terms of the final order and to answer questions from investors;
- Reimburse certain investors for the cost of loans after the investor took out a loan from E*TRADE because the investor’s auction rate securities were frozen; and
- Pay to the states monetary penalties of $5 million and reimburse certain costs of the investigation.