Deutsche Bank Securities Inc. Pays $1M to the New Jersey Bureau of Securities to Settle Auction-Rate Securities Case
NEWARK – The Office of the Attorney General through its Bureau of Securities today signed a final Consent Order that requires Deutsche Bank Securities, Inc. to complete or confirm its repurchase of auction-rate securities from New Jersey clients to settle allegations that the firm’s securities dealers failed to disclose risks of the auction-rate securities market.
The New Jersey Bureau of Securities (NJBOS) led the North American Securities Administrators Association’s investigation into Deutsche Bank Securities’ auction-rate securities practices. That investigation led to today’s final settlement.
“I commend our Bureau of Securities for its leadership in investigating Deutsche Bank Securities’ business practices,” Attorney General Anne Milgram said. “The New Jersey investors whose auction-rate securities investments were frozen during last year’s meltdown will now have free access to their funds, under terms of this settlement.”
Under this settlement, individual investors in New Jersey as defined in the Consent Order are eligible to have approximately $60 million in auction-rate securities repurchased.
Although marketed and sold to investors as safe, liquid, and cash-like investments, auction-rate securities are actually long-term investments subject to a complex auction process that failed in early 2008, revealing illiquidity and lower interest rates than investors were promised.
“Our Bureau of Securities led the Deutsche Bank Securities task force that combined and coordinated investigative resources,” said David Szuchman, Consumer Affairs Director. “The settlement makes investors whole and restores their hard-earned monies.”
“The Bureau of Securities has sought to secure much needed relief for investors stuck with these unsuitable and illiquid products,” said Marc B. Minor, New Jersey Bureau of Securities Chief. “I am pleased that Deutsche Bank Securities has agreed to do what’s right by offering to repurchase clients’ positions.”
This is the second auction-rate securities settlement announced by the NJBOS, following Citigroup last month.
The order also requires Deutsche Bank Securities to pay a $1,057,350.69 civil penalty to New Jersey. This amount represents the state’s pro-rata share of a $15M settlement negotiated by the multi-state task force of state regulators formed by the North American Securities Administrators Association.
During the investigation, the Bureau of Securities discovered that Deutsche Bank Securities’ dealers failed to adequately inform customers and train employees on the risks associated with buying auction-rate securities.
The investigation into Deutsche Bank Securities’ role in the marketing of auction-rate securities is part of a larger state-led effort to address problems in connection with auction-rate securities investments. Early in 2008, state offices began receiving complaints from investors throughout the country. As a result, in April, 12 states, including New Jersey, formed a task force to investigate whether the nation's prominent Wall Street firms had systematically misled investors when placing them in auction-rate securities.
The Consent Order announced today sets forth the allegations by the Bureau and the terms that were agreed to in principle in August, 2008.
The Bureau thanks the Delaware Division of Securities and its staff for their assistance and support in the investigation of Deutsche Bank Securities.
NJBOS Investigating Attorney Peter C. Cole led New Jersey’s efforts in securing this settlement and protecting Garden State investors.
The Bureau of Securities can be contacted toll-free within New Jersey at 1-877-I-INVEST (1-877-446-8378) or from outside New Jersey at 973-504-3600. The Bureau's web site is located at www.njsecurities.gov.