NEWARK – The Office of the Attorney General through its Bureau of Securities has signed a final Consent Order that requires RBC Capital Markets Corp. to complete or confirm its repurchase of auction-rate securities (ARS) from New Jersey clients to settle allegations that the firm’s securities dealers sold ARS without disclosing known risks of the ARS market.
Under the terms of the settlement, RBC will repurchase all of the ARS, approximately $51 million, that it sold to New Jersey investors. Although marketed and sold to investors as safe, liquid, and cash-like investments, the ARS were 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.
“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. “State securities regulators joined forces to resolve this matter on behalf of New Jersey investors and we continue to be on the frontlines in protecting investors and their hard-earned savings.”
The order also requires RBC to pay a $51,724 civil penalty to New Jersey. This amount represents the state’s pro-rata share of a settlement negotiated by a multi-state task force of state regulators formed by the North American Securities Administrators Association (NASAA).
During the investigation, regulators discovered that RBC’s securities dealers failed to adequately inform customers on the risks associated with buying auction-rate securities.
The investigation into RBC’s role in the marketing of auction rate securities is part of a larger state-led effort to address problems in connection with ARS 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 certain Wall Street firms had systematically misled investors when placing them in auction rate securities.
The Consent Order sets forth the allegations by the BOS and the terms that were agreed to in principle in October, 2008.
BOS 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.