The Financial Industry Regulatory Authority said Monday that it has fined Chicago-based Nuveen Investments, the largest manager of closed-end funds, $3 million for creating misleading marketing materials used in sales of auction-rate preferred securities prior to the 2008 market collapse.
According to FINRA’s narrative of events, by early 2008, over $15 billion of Nuveen Funds’ ARPS had been sold to retail customers by third-party broker-dealers. Nuveen did not sell the ARPS to customers, but in its role as distributor for Nuveen Funds, it created marketing brochures used by the broker-dealers who sold the ARPS to retail customers.
“The brochures, also available on Nuveen’s website, failed to adequately disclose liquidity risks for ARPS,” FINRA said in a news release. The action was brought by FINRA Director Dan McClain under the supervision of Thomas Lawson, Chief Counsel.
Nuveen neither admitted nor denied wrongdoing in the settlement, but consented to the entry of the self-regulatory body’s findings.
“As part of this settlement, Nuveen neither admits to nor denies FINRA’s allegations,” the company said in a statement. “This settlement concludes a two-year investigation that followed the widespread failure of auctions for ARPS and for other auction rate securities generally beginning in mid-February 2008. In the settlement, Nuveen agreed to a censure and the payment of a $3 million fine. It is one of a number of settlements that broker dealers have entered into with FINRA in the aftermath of the collapse of the auction rate securities markets relating to disclosures in marketing materials. Nuveen has cooperated with FINRA throughout the investigation.”
To date, the Nuveen funds have redeemed approximately $14.2 billion of the $15.4 billion of the ARPS that were outstanding on February 12, 2008. As part of the settlement, Nuveen agreed to use its best efforts to effect redemptions of any remaining outstanding Nuveen funds ARPS.
The ARPS were long-term securities with interest rates or dividend yields that reset periodically through an auction process. In contrast to other types of auction-rate securities,