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NEWARK - The Office of the
Attorney General through its Bureau of Securities
yesterday signed a final Consent Order that
requires JPMorgan Chase & Co. (JPMorgan)
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.
Although 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, causing
illiquidity and lower interest rates than
investors were promised.
Under this settlement, individual
investors in New Jersey are eligible to
have approximately $91,250,000 in ARS repurchased.
“ New Jersey investors,
whose ARS investments were frozen as a result
of JPMorgan's role in these auction market
failures, will now regain access to their
funds under terms of this settlement ,”
Attorney General Paula T. Dow said. “Our
Bureau of Securities continues to work with
other state regulators to protect investors
and ensure the return of their monies.”
The order also requires
JPMorgan to pay a $1,149,028.56 fine to
New Jersey . 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).
“Our Bureau of Securities
worked with other state regulators in a
task force that combined and coordinated
investigative resources,” said Thomas
R. Calcagni, Acting Director of the Division
of Consumer Affairs. “ New Jersey
will continue to be an active leader in
investor protection.”
The Bureau has now entered
into Consent Orders with six firms to resolve
their conduct in the ARS market. These agreements
have generated over $1 billion in repurchases
of ARS for New Jersey investors.
“From the first failed
ARS, the Bureau of Securities has sought
to secure the necessary relief for investors
stuck with these unsuitable and illiquid
products,” said Marc B. Minor, New
Jersey Bureau of Securities chief. “JPMorgan
has agreed to do what's right by offering
to repurchase its clients' positions, and
I fully expect other firms that employed
similar practices in marketing and selling
these securities in New Jersey to do the
same.”
During the investigation,
regulators discovered that JPMorgan inappropriately
marketed and sold ARS without adequately
informing their customers of the increased
risks of illiquidity associated with the
product. The investigation focused on conduct
occurring between the fall of 2007 through
the failures in February 2008 .
The investigation into JPMorgan'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, by
April 2008, 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 yesterday concludes New Jersey
's auction rate securities case against
JPMorgan as to retail investors.
BOS Investigating Attorney
Peter C. Cole led New Jersey 's efforts
in securing this settlement with JP Morgan.
The
Bureau of Securities, a part of the Division
of Consumer Affairs, 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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