New Jersey Regulators Come To Terms With Wachovia And Raymond James Over ARS Allegations

Wachovia Securities LLC, Wachovia Capital Markets LLC and Raymond James & Associates LLC have reached an agreement with the New Jersey Bureau of Securities to buy back more than $457 million worth of auction rate securities (ARS) from investors in New Jersey, plus paying $3.26 million in fines to settle allegations that the firms sold ARS without providing full and complete disclosure of the risks involved with the investment, according to Bloomberg and other sources.

Under the terms of the settlement, Wachovia (Now part of Wells Fargo Advisors) will buy back $441 million worth of the ARS from New Jersey investors and pay $3.2 million in fines. Raymond James is set to buy back $16.7 million worth of the ARS and pay $35,000 in fines. When the ARS market froze in February 2008, New Jersey investors owned some $900 million in ARS. Wells Fargo has indicated that this is the last of their settlements with state regulators for ARS claims, which has cost the firm $50 million in fines, not to mention the buy-back figures.

The New Jersey regulators alleged that the firms marketed and sold the ARS to investors as very safe, cash-like, liquid investments, when in fact they were long term investment vehicles that were governed by a complex auction process that froze in February 2008.

The settlement marks the 14th and 15th settlements that New Jersey has made with firms who marketed and sold ARS in the state. As a result, some $4 billion worth of ARS have been bought back and firms have been hit with over $22 million in fines.

The Director of the New Jersey Division of Consumer Affairs, Thomas R. Calcagni, said that "Consumers work hard to build up their savings. Their monies shouldn't be placed at unnecessary risk through non-disclosure of all known facts. These settlements put the financial industry on notice that we will act to protect investors, and hold firms accountable when securities laws are violated." Attorney General Paula Dow added, "When financial firms don't disclose all know risks to investors, they are violating our state securities laws and the trust of their clients." "In settling these cases we are stressing the importance of proper disclosure going forward."

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