State makes $31M settlement with securities firm

August 24, 2011

The Indiana Securities Division has finalized a settlement with a national securities firm accused of misleading Hoosier investors, Secretary of State Charles P. White said Wednesday afternoon.

St. Petersburg, Fla.-based Raymond James has agreed to return $31.2 million to Indiana investors by repurchasing some auction rate securities. The firm also will pay fines totaling $63,000.

White’s office accused Raymond James of misleading investors about the safety of the auction rate securities market.

Overall, state regulators say they have helped return $804 million to Indiana investors who purchased auction rate securities.

In April 2010, former Secretary of State Todd Rokita announced that the securities division finalized a dozen settlements with investments firms that agreed to repurchase more than $370 million in auction rate securities.

Those firms were Goldman Sachs & Co., Banc of America, Citigroup, Credit Suisse, Deutschebank, JP Morgan, Merrill Lynch, Morgan Stanley, RBC, Stifel Nicolaus & Co., UBS and Wachovia.

Auction-rate securities are bonds whose interest rates are meant to be reset regularly at daily, weekly or monthly auctions. Many financial firms marketed them as safe, liquid and cash-like investments. But when credit markets seized up as the recession deepened, auctions began to fail in 2008, freezing the $200 billion global market and leaving investors unable to access their money.

Because only a handful of previous auctions ever had failed, many investors considered the securities a safe form of temporary financing—essentially a better-yielding alternative to money market accounts.



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