State Securities Regulators Announce Settlement with Bank of America and RBC Capital Markets Corp. in Auction Rate Securities Investigations
WASHINGTON, D.C. October 8, 2008 — The North American Securities Administrators Association (NASAA) today announced that Bank of America Securities LLC, Bank of America Investment Services, Inc., RBC Capital Markets Corporation (on behalf of its affiliates including Ferris Baker Watts, Inc. and J. B. Hanauer & Co.) and state and federal securities regulators have reached settlements in principle that will provide relief for the firm’s clients who have had their funds frozen in the auction rate securities (ARS) market.
The settlements call for Bank of America to repurchase from investors ARS securities valued at $4.5 billion, while RBC agreed to buy back ARS securities valued at $850 million. The settlements conclude investigations into allegations that the firms misled clients by falsely assuring them that ARS securities were as safe and liquid as cash. The ARS markets froze in February this year, triggering complaints from investors who could not withdraw money from their accounts.
“Given the current economic situation and turmoil on Wall Street, today’s settlements represent a step toward providing a measure of relief for thousands of Main Street investors who have been trapped in the auction rate securities meltdown,” said NASAA President and Colorado Securities Commissioner Fred Joseph. “To date, more than $50 billion has been ordered returned to ARS investors.”
Joseph also thanked the New York Office of the Attorney General and the SEC for their collaboration and assistance in reaching today’s settlements.
Under the terms of its settlement, Bank of America agreed that its subsidiary, Blue Ridge Investments, LLC, will buy back at par value as soon as practicable auction rate securities held by individuals that were purchased from Bank of America prior to February 11, 2008. Under terms of the settlement, “individual investors” include all individuals; trusts established by individuals for the benefit of natural persons, family-owned investment vehicles for passive investments IRA accounts, and Keogh and 401(k) plans; all charities and non-profits with account values less than $25 million with Bank of America; and small- to medium-sized businesses with account values less than $15 million with Bank of America.
Under the terms of its settlement, RBC agreed to buy back at par value as soon as practicable auction rate securities held by individuals that were purchased from or through RBC prior to February 11, 2008. Under terms of the settlement, “individual investors” include: all individuals; legal entities forming an investment vehicle for family members including but not limited to IRA accounts, Trusts, Family Limited Partnerships and other legal entities performing a similar function; all charities, non-profits, and government entities with accounts of $25 million or less; and all other entities with accounts of $10 million or less.
The settlement agreement also calls for Bank of America and RBC to:
- Fully reimburse all individual investors who sold their auction rate securities at a discount after the market failed;
- Consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by individual investors as a result of not being able to access their funds;
- Undertake to expeditiously provide liquidity solutions to all institutional investors; and
- Reimburse all refinancing fees to municipal issuers who issued auction rate securities through between August 1, 2007 and February 11, 2008 and that refinanced those securities after February 11, 2008.
Bank of America also agreed to pay to the states civil penalties of $50 million and RBC agreed to pay to the states civil penalties of $9.8 million.
The investigations into possible violations by Bank of America and RBC are part of a larger, ongoing state-led effort to address problems in connection with the offer and sale of ARS securities. Earlier this year, state offices began receiving hundreds of complaints from Main Street investors. As a result, in April, NASAA announced the formation of a multi-state Task Force, comprised of securities regulators in 12 states, to investigate whether the nation’s prominent Wall Street firms had systematically misled investors when placing them in ARS securities.
NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico.
For more information:
Bob Webster, Director of Communications