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NEWARK
-- The N.J. Bureau of Securities, as part
of a national task force with other state
regulators, has reached a settlement with
Morgan Stanley and J.P. Morgan Chase and
Co. (“J.P. Morgan”) which will
give thousands of affected clients, including
New Jersey investors, access to over $7
billion in funds that have been frozen in
the auction rate securities (ARS) market.
Morgan
Stanley will pay a civil penalty in the
amount of $35 million to the states and
J.P Morgan will pay $25 million. The penalties
in these matters will be distributed on
a pro-rata basis.
“The
work of Bureau Enforcement Chief Rick Barry
in this multi-state effort was noted at
today’s settlement announcement and
his efforts on behalf of New Jersey investors
are greatly appreciated,” said Vincent
J. Oliva, NJBOS Chief.
Morgan
Stanley will provide liquidity to its retail
investors who purchased auction rate securities
through Morgan Stanley before February 13,
2008, and who are unable to sell those securities
because of failed auctions, by offering
to buy back the securities at par. The categories
of investors covered in the settlement includes
all individual investors, all charities
and non-profits, and small to mid-sized
businesses. Morgan Stanley has made the
offer effective immediately, and will complete
all repurchases from investors who accept
this offer by December 11, 2008.
Morgan
Stanley will provide notice to its customers
of the settlement terms and Morgan Stanley
will establish a dedicated telephone assistance
line, with appropriate staff, to respond
to questions from customers concerning the
terms of the Settlement.
Morgan
Stanley will also:
- reimburse
all retail investors who sold their auction
rate securities at a discount after the
market failed the difference between what
they received and par;
- consent
to a special, public arbitration procedure
to resolve claims of consequential damages
suffered by retail investors as a result
of not being able to access their funds,
in which Citigroup will concede liability
for purposes of arbitration on the question
of the illiquidity of auction rate securities;
- provide
acceptable liquidity solutions to all
other institutional investors by November
4, 2008; and
- reimburse
all refinancing fees to any state municipal
issuers who issued auction rate securities
in the initial primary market between
August 1, 2007 and February 11, 2008,
who refinanced those securities after
February 11, 2008.
JP MORGAN
Under the terms of the settlement, JP Morgan
and its affiliates, including Bear Stearns
& Co., Inc., will offer to repurchase,
no later than November 12, 2008, all illiquid
auction rate securities from all JP Morgan
individual investors, charities, not-for-profit
companies and small to mid-sized businesses.
JP
Morgan will also:
- Fully
reimburse all retail investors who sold
their auction rate securities at a discount
after the market failed in February 2008;
-
Consent to a special, public arbitration
procedure to resolve claims of consequential
damages suffered by retail investors as
a result of not being able to access their
funds, in which JP Morgan will not contest
its liability for the illiquidity of the
auction rate securities and in which JP
Morgan will pay all forum fees;
- Undertake
to expeditiously provide liquidity solutions
to all other institutional investors,
with regular progress reports and subject
to an outside deadline of December 2009;
- Reimburse
all refinancing fees to municipal issuers
who issued auction rate securities through
JP Morgan since August 1, 2007, and who
refinanced those securities after the
market failed; and
- Establish
a dedicated telephone assistance line,
with appropriate staff to respond to questions
from customers.
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