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NEWARK
– The New Jersey Division of Consumer
Affairs, through its Bureau of Securities,
has signed final Consent Orders requiring
Goldman, Sachs & Co. (“Goldman
Sachs”) and Wells Fargo Investments,
Inc., to repurchase auction-rate securities
(ARS) from New Jersey clients to settle
allegations that the firms sold ARS without
disclosing known risks of the ARS market.
Although
marketed and sold to investors as safe,
liquid, and cash-like investments, 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.
Under
the terms of the settlement, Goldman Sachs
has repurchased $25.5 million in ARS sold
to retail investors in New Jersey. Goldman
Sachs also will pay $959,794 in civil penalties
to the State. As part of its findings, the
Bureau determined that Goldman Sachs failed
to adequately train and supervise its salespeople
to ensure that all of the firm’s clients
were aware of the auction market’s
mechanics and the potential illiquidity
of ARS. Further, Goldman Sachs never disclosed
increasing risks of owning or purchasing
ARS to its customers even as the firm became
aware of increasing strains in the ARS market.
Wells
Fargo Investments has repurchased $1.37
million of the ARS it sold to retail investors
in the state. The Bureau found, among other
things, that Wells Fargo Investments failed
to adequately train and supervise its agents
who marketed ARS.
“The
failure of these firms to disclose known
risks ultimately harmed investors who purchased
auction rate securities,” Attorney
General Paula T. Dow said. “State
law requires disclosure of all material
facts to investors, particularly when their
hard-earned money is on the line.”
These
two Consent Orders represent the 11th and
12th settlements that the Bureau of Securities
has reached with firms that sold ARS to
New Jersey investors. To date, more than
$2.8 billion of these assets have been repurchased
or offered to be repurchased from New Jersey
investors as part of settlements with firms
that marketed and sold these products.
“Deception
or concealment of facts by investment firms
and their employees will not be tolerated,”
said Thomas R. Calcagni, Acting Director
of the Division of Consumer Affairs. “An
honest deal begins with clear and complete
disclosure of risks to potential investors.”
The
investigation into Goldman Sachs’
and Wells Fargo Investments’ roles
in the sale of these 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, 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.
“Investors
face many complex options and the decision-making
process can be daunting. Those offering
investment products are legally obligated
to disclose all relevant terms and conditions,
so potential investors can make fully-informed
decisions,” said Amy Kopleton, Acting
Bureau Chief. “State securities regulators
continue to work together to hold the responsible
firms accountable for failing to provide
these disclosures.”
Bureau
of Securities Investigating Attorney Peter
C. Cole led New Jersey’s efforts in
securing these settlements and protecting
Garden State investors.
The
Bureau of Securities can be contacted toll-free
within New Jersey at 1-866-I-INVEST
(1-866-446-8378) or from outside New Jersey
at 973-504-3600. The Bureau's
website is located at www.njsecurities.gov.
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