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Robert Trigaux

Can Raymond James finesse its way out of 'auction rate securities' controversy?



Tomjamescourtesy Wake up and good morning. Raymond James Financial has had a pretty sweet message to tell he world since Wall Street did its meltdown last fall and so many of the heavyweight Wall Street firms -- pick one, like Lehman Brothers or Bear Stearns or Merrill Lynch-- either went out of business or were sold on the cheap to a banking company under government pressure. Raymond James, based in St. Petersburg, and its CEO, Tom James, have avoided most of the heat that has burned many investment firms and executives.

But Raymond James has one notable Achilles Heel. It sold a bunch of "auction rate securities" to investing clients several years ago when it was all the rage and the Wall Street industry message was promising a safe and liquid investment. So did a lot of other firms. But when the auction rate securities market froze amid the Wall Street meltdown, Raymond James chose the tougher road, at least from a public relations point of view. It declined to make investors whole by redeeming their shares or paying to recoup investor losses. Other firms like TD Ameritrade have made concessions to buy back some of the securities, while Morgan Keegan, part of Regions Financial Corp., has been sued by the SEC for misleading investors.

Gretchenmorgensonnytimescourtesy Most recently entering the fray is Gretchen Morgenson, a New York Times business columnist (and 2002 Pulitzer Prize winner for her coverage of Wall Street) who on Saturday raised questions in her Fair Game column about Raymond James' handling of the auction rate securities controversy. The firm's clients hold some $800 million of the illiquid investment.

Is it fair, Morgenson posed, for Raymond James not to help its auction rate securities clients but also pony up funds to raise its corporate dividend by 10 percent (enriching Raymond James investors, which include Tom James, she notes) or spending $6.3 million in 2008 and 2009 to pay for its ongoing naming rights to Raymond James Stadium, home of the Tampa Bay Buccaneers? Writes Morgenson:

"Nothing wrong with spending money to build a brand, of course. But shouldn’t treating your customers well come ahead of keeping your name on a stadium?"

Raymond James responded to Morgenson, saying via a spokeswoman that it is cooperating with all regulatory investigations and working with clients "to meet their needs for liquidity."

Morgenson revived the issue, in part because TD Ameritrade last month agreed to return some $456 million to roughly 4,000 customers who bought now-frozen auction rate securities. Also last month, Regions Financial's Morgan Keegan brokerage unit was sued by U.S. regulators on claims it stranded clients with $1.2 billion in auction-rate securities when the market for the instruments collapsed last year. 

Clearly Raymond James hopes it can finesse its way out of the auction rate securities mess, and perhaps it will. Either way, it makes for a fascinating look at an unusual challenge for a big investment firm based right here in Tampa Bay.

(Photo of Tom James courtesy of Raymond James. Photo of Gretchen Morgenson courtesy of the New York Times.)

-- Robert Trigaux, Times Business Columnist 

[Last modified: Tuesday, June 1, 2010 11:25am]


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