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Raymond James Financial to pay $300 million to settle SEC auction-rate securities charges

Following in the footsteps of several other big brokerage firms, St. Petersburg's Raymond James Financial agreed Wednesday to pay $300 million to settle charges that it misled clients about auction-rate securities — investments that were pitched as safe and liquid but turned toxic during the 2008-2009 credit crisis.

As part of a settlement with the Securities and Exchange Commission, Raymond James said it would buy back auction-rate securities from current and former customers. The firm also agreed to pay $1.75 million to a group of state regulators led by Florida and Texas. Raymond James neither admitted nor denied the allegations.

"I am pleased we are able to resolve this issue and provide liquidity to clients who continue to hold ARS (auction-rate securities) in their portfolios," Raymond James CEO Paul Reilly said in a statement.

The SEC accused the brokerage of making false statements about the investments, calling them "safe, liquid alternatives to money market funds and other cashlike investments." When the market seized in 2008, investors couldn't sell the securities and lost billions of dollars.

In 2009, Raymond James also found itself in a bind. While larger financial firms placated regulators and investors by buying back the securities from customers, Tom James, then Raymond James' CEO, told clients the company did not have access to financing to cover "anything near" the $1 billion outstanding in auction-rate securities owned by its clients.

Auction-rate securities are a long-term debt instrument designed to trade like short-term securities. They were issued by many municipalities and closed-end mutual funds, and often pitched to small investors as safe and easily redeemable. In early 2008, as the credit crunch intensified, the $300 billion auction-rate market froze, leaving investors unable to sell their holdings.

"Raymond James improperly marketed and sold ARS to customers as safe and highly liquid alternatives to money market accounts and other short-term investments," Eric I. Bustillo, director of the SEC's Miami office, said in a statement. "Harmed investors who are covered by this settlement will have the opportunity to get full payment for their illiquid ARS."

Other financial firms that have already settled similar charges with the SEC include Citigroup, UBS, Wachovia, Bank of America, RBC Capital Markets, Deutsche Bank and TD Ameritrade. The SEC said more than $67 billion has been returned to investors.

Information from Times wires was used in this report.

Raymond James Financial to pay $300 million to settle SEC auction-rate securities charges 06/29/11 [Last modified: Wednesday, June 29, 2011 9:58pm]
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