The settlements continue among banks agreeing to repurchase auction rate securities, with City National Securities, BNY Mellon Capital Markets, and Harris Investor Services agreeing today to repay a total of more than $60 million.
The companies have agreed to make whole individual investors who sold ARS below par after Feb. 28, according to an announcement from The Financial Industry Regulatory Authority (FINRA). The companies don’t admit to or deny any charges in the settlement.
Under its terms, City National will pay a fine of $315,000, with BNY Mellon paying $250,000 and Harris $150,000. The firms also agreed to appointment of an independent, nonindustry arbitrator to resolve investor claims for any consequential damages — damages they may have suffered from their inability to access funds invested in ARS.
“In all of our auction rate securities investigations and settlements, FINRA’s primary goal continues to be the restoration of investors’ access to the millions of dollars they invested in ARS,” said Susan L. Merrill, FINRA executive vice president and chief of enforcement.
Each principle agreement is subject to being formalized in an approved settlement document called a Letter of Acceptance, Waiver, and Consent . Last month, FINRA announced similar agreements in principle with five firms: SunTrust Investment Services, Inc., SunTrust Robinson Humphrey, Comerica Securities, First Southwest Co., and WaMu Investments, Inc.
A number of large financial institutions also previously agreed to similar settlements with state regulators. The companies include Credit Suisse Securities (USA) LLC, Citigroup, UBS, JP Morgan, Morgan Stanley, Wachovia, Merrill Lynch, Goldman Sachs, and Deutsche Bank. In addition, Fidelity Investments became the first downstream retail broker to settle and agree to buy back ARS from its customers.
Under the latest settlement, in addition to individual investors, those eligible for ARS repurchase and/or payments for ARS sold below par include non-profit charitable organizations and religious corporations or entities. Trusts, corporate trusts, corporations, pension plans, educational institutions, incorporated non-profit organizations, limited liability companies, limited partnerships, nonpublic companies, partnerships, personal holding companies, and unincorporated associations that made individual ARS purchases and whose account value did not exceed $10 million will also be eligible.
FINRA said that its investigation found evidence that each firm sold ARS using advertising, marketing materials, or other internal communications with its sales force that were not fair and balanced and therefore did not provide a sound basis for investors to evaluate the benefits and risks of purchasing ARS. FINRA’s investigation also found evidence that each firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with the securities laws and FINRA rules with respect to the marketing and sale of ARS.