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NEWARK
- Acting Attorney General Paula T. Dow,
Acting Consumer Affairs Director Sharon
Joyce and Bureau of Securities Chief Marc
B. Minor today announced that the Bureau
has signed a final Consent Order that requires
Banc of America Securities LLC and Banc
of America Investment Services, Inc. (together,
“Bank of America”) to complete
or confirm its repurchase of auction-rate
securities (ARS) from New Jersey clients
to settle allegations that the firm’s
securities dealers failed to disclose risks
of the ARS market.
Under
this settlement, individual investors in
New Jersey are eligible to have approximately
$386 million in ARS repurchased.
“New
Jersey investors became victims through
no fault of their own when their auction
rate securities at Bank of America were
frozen,” Acting Attorney General Dow
said. “This settlement fully protects
these investors and holds Bank of America
accountable for how it marketed the auction
rate securities.”
Although often marketed and sold to investors
as safe, liquid, and cash-like investments,
ARS 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.
“State
regulators, including our Bureau of Securities,
combined their resources and worked together
on behalf of investors throughout the country,”
Joyce said. “The resolution of this
matter underscores how state regulators
are an important resource in protecting
investors.”
“The
Bureau of Securities has worked hard to
provide much needed relief to investors
stuck with these unsuitable and illiquid
products,” Minor said. “I am
pleased that Bank of America has agreed
to do what’s right by offering to
repurchase clients’ positions.”
The
order also requires Bank of America to pay
$1,268,393 in civil penalties to the Bureau.
The fine 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, state regulators discovered
that Banc of America Securities LLC was
among other lead broker-dealers who used
“support bids” to artificially
prop up auctions and create the illusion
of a normal, functioning, and liquid auction
market. Further, Bank of America inappropriately
marketed and sold ARS without adequately
informing their customers of the increased
risks of illiquidity associated with the
product for the time period August 1, 2007,
through February 11, 2008.
The
investigation into Bank of America’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, 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.
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.
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