Securities Commissioner Benette L. Zivley announced today that Raymond James Financial Services Inc. and Raymond James & Associates Inc. will pay a $293,595 fine to the State of Texas to settle claims the companies failed to disclose the risks of auction rate securities.
As a result of the settlement, Raymond James will repurchase approximately $300 million of the auction rate securities it sold to its customers nationwide, including Texas investors. Texas and Florida led a multi-state investigation into Raymond James' sale of the securities.
The June 29 Consent Order is available at /sites/default/files/files/news/IC11-08.pdf.
According to the Raymond James' registered representatives and financial advisers told their customers that auction rate securities were "cash equivalents" and "highly liquid" short-term investments that produced a higher yield than money market accounts.
Auction rate securities are typically long-term bonds and investors could only gain access to their money when periodic auctions of the securities were successful. When the market for these securities collapsed in early 2008, many investors' ARS accounts were frozen. Raymond James' customers "currently hold hundreds of millions of dollars in illiquid ARS that they are unable to sell through the action process," according to the Consent Order.
Nationally, Raymond James will pay a $1.75 million fine to settle the ARS cases.
The Texas Consent Order cites a failure of oversight and training at Raymond James, saying the companies "failed to reasonably supervise" their agents in violation of State Securities Board rules.
Raymond James' representatives and advisers also failed to "adequately disclose to customers" that the securities could become illiquid if the auction process failed. Raymond James should have known their agents were misleading investors, the Order states.
The Order requires Raymond James to set up a toll-free line for auction rate securities customers and mandates a special arbitration process for customers who claim damages arising from their inability to sell the securities.
In concluding this matter with Raymond James, the Texas State Securities Board acknowledges the cooperation and assistance of the Securities & Exchange Commission's Miami Office.
Texas State Securities Board investigations and orders in auction rate securities have returned approximately $9 billion to Texas investors. The State of Texas General Fund has received $39 million in fines from ARS cases.