WASHINGTON, D.C. August 14, 2008 — The North American Securities Administrators Association (NASAA), Illinois Securities Department and Florida Office of Financial Regulation, along with the New York Office of the Attorney General, today announced that settlements have been reached with JP Morgan and its affiliates (including Bear Stearns & Co. Inc.) and Morgan Stanley, which will give thousands of the firms’ clients access to billions of dollars in funds that have been frozen in the auction rate securities (ARS) market.

The settlement concludes an investigation led by the Illinois Securities Department and the Florida Office of Financial Regulation into allegations that both 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 a flood of complaints from investors who could not withdraw money from their accounts. States received complaints from a wide range of investors who suffered significant financial damage because the money they were told was liquid was tied up in the frozen ARS market.

Settlement Details

Morgan Stanley
Under terms of the settlement, Morgan Stanley has agreed to provide immediate 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 category of retail investors includes all individual investors, all charities and non-profits, and all institutional clients with account values and household values up to $10 million. 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 the firm 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 the firm 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 December 11, 2008;
• 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; and
• Pay to the states a penalty in the amount of $35 million.

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 institutional clients who have account values and household assets of up to $10 million.

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;
• Establish a dedicated telephone assistance line, with appropriate staff to respond to questions from customers; and
• Pay $25 million in civil penalties to the states.

NASAA President Karen Tyler said the SEC was not a party to either settlement.

The investigation into possible violations by JP Morgan and Morgan Stanley is part of a larger 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.

The members of the Task Force are continuing their investigations into possible misconduct by other firms. To date, enforcement actions alleging fraud and other violations in connection with ARS securities have been filed by Massachusetts, New York, and Texas against UBS. In addition, Massachusetts has filed an action against Merrill Lynch.

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
202-737-0900