More On Legal & Compliancefrom The Advisor's Professional Library
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
In the latest investigation of the troubled auction-rate securities market, the Securities and Exchange Commission's Division of Enforcement announced August 7 a preliminary settlement in principle with Citigroup Global Markets, Inc. (Citi) including proposed charges and a plan that would give individual investors, small businesses, and charities all $7.5 billion of their money back from auction-rate securities (ARS) they purchased from the firm.
The agreement, the SEC says, also would require "Citi to use its best efforts to liquidate by the end of 2009 all of the approximately $12 billion worth of ARS the firm sold to retirement plans and other institutional investors."
As the SEC notes in its release announcing the preliminary settlement, the ARS market collapsed in mid-February 2008, leaving tens of thousands of Citi customers holding nearly $20 billion of these illiquid securities for an indefinite period of time. "The conduct underlying the proposed charges stems from Citi's marketing of ARS to many of its customers as highly liquid investments, including as money market investments," the SEC release states. "The liquidity of these securities, however, was premised on Citi providing support bids for auctions it managed when there was not enough customer demand. When Citi stopped supporting auctions in February 2008, there were widespread auction failures. As a result, thousands of Citi customers were left holding illiquid securities."
Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said in the release, "Today's agreement in principle provides real relief to investors. In a short period of time, about 38,000 individual, small business, and charitable organization investor accounts will receive nearly $7.5 billion in liquidity, and Citi will begin the process of restoring liquidity to over 2,600 institutional investors who hold approximately $12 billion in auction rate securities. This settlement in principle is an outstanding example of federal and state regulatory cooperation for the benefit of investors and markets."