More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
Raymond James reached an agreement with state securities regulators and the SEC on Wednesday over sales of auction rate securities. As part of the deal, which affects ARS sales made before mid-February 2008, Raymond James will buy back the ARS at par value, which is now about $280 million, and pay a fine of $1.75 million to state regulators. At the time of purchase, the ARS were valued at $2.1 billion.
“I am pleased we are able to resolve this issue and provide liquidity to clients who continue to hold ARS in their portfolios,” said CEO Paul Reilly (left) in a press release. As a result of the agreement, Raymond James says it will take a pre-tax charge of about $50 million in the quarter ending June 30, 2011.
The settlement requires Raymond James to extend offers to repurchase ARS for the next 30 days.The purchase offer is to remain open for 75 days after the distribution of the initial notice to individual investors. Florida and Texas were in charge of the settlement, with Indiana, Missouri, New York, North Carolina, Pennsylvania and South Carolina also involved.
“The Florida Office of Financial Regulation is pleased to have spearheaded this effort that will result in offers to reimburse nearly $300 million to investors nationwide, a quarter of whom are Floridians,” said OFR Commissioner Tom Cardwell, in a press release. “Successfully having investors offered a 100 percent reimbursement by Raymond James as a result of the actions of our Division of Securities, in collaboration with other securities regulators, is a huge victory for investors.”
The OFR concluded that Raymond James had violated the Florida Securities and Investor Protection Act, Chapter 517, Florida Statutes, and related rules, by having engaged in dishonest or unethical conduct and failing to reasonably supervise its agents.
Specifically, OFR said that Raymond James “made inaccurate comparisons between auction rate securities and other investments and by telling customers that auction rate securities were ‘cash equivalents,’ ‘the same as cash’ and ‘highly liquid.’ ”
OFR also says the St. Petersburg, Fla.-based broker-dealer “failed to adequately disclose the risks associated with the auction process by which the securities were sold and … the risks that in the event of a failed auction, the securities could become illiquid, resulting in a freezing of the investor’s money for an indeterminate period of time.”
In agreeing to the settlement, Raymond James says it neither admitted nor denied the findings. It shares traded up about 3% to $32.15 in afternoon trading on Wednesday.
“Raymond James improperly marketed and sold ARS to customers as safe and highly liquid alternatives to money market accounts and other short-term investments,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office, in a press release. “Harmed investors who are covered by this settlement will have the opportunity to get full payment for their illiquid ARS.”
As a result of SEC settlements with BofA, Citigroup, TD Ameritrade, UBS, Wachovia-Wells Fargo, RBC Capital Markets and Deutsche Bank, more than $67 billion has been returned to ARS customers, the regulatory body says.