Raymond James Financial Inc. Agrees to Settlement with States, SEC over Auction-Rate Securities; to Pay $1.7M Fine

In a June 29, 2011, article by Bruce Kelly for InvestmentNews.com he writes that as part of a settlement with eight states and the Securities and Exchange Commission, Raymond James Financial Inc. will buy back $300 million in auction-rate securities from clients and pay a fine of $1.7 million. The states in charge of the settlement are Florida and Texas. Other states involved were Indiana, Missouri, New York, North Carolina, Pennsylvania and South Carolina.

It was reported that Raymond James has 30 days to extend an offer to repurchase the securities, and the offer must be open for 75 days after that initial bid.

Raymond James' registered representatives and financial advisers told their customers that ARS were “cash equivalents” and “highly liquid” short-term investments that sported a higher yield than money market accounts, according to the consent order for the dispute.

Kelly goes on to say that Raymond James has been dealing with the ARS mess since the winter of 2008, when the market froze for billions of dollars of the securities, leaving institutional and retail clients locked into large cash positions. In August 2008, Raymond James said it was subject to investigations by regulators regarding the ARS sold be its registered reps to clients, who owned about $1.3 billion in paper at that time. Since then, the firm has been unwinding its position, but the issue of buying back ARS has been a thorn in the side of the brokerage for some time. In March 2009, the firm's chairman and former chief executive, Tom James, said it was possible that Raymond James could sue an issuer of the securities, Pacific Investment Management Co. LLC, if it failed to buy back the securities from clients.

“These [issuing firms] are going to refinance; otherwise, as I've told them, ‘We're going to sue you guys,'” Mr. James said at the time. “‘You don't understand. We distributed for you guys, and you haven't lived up to your obligations.'”

It was reported in the InvestmentNews.com article that Raymond James, which neither admitted to or denied the allegations, noted that it was fined by the states, not the SEC.

“Raymond James leadership worked diligently to facilitate redemptions by the issuers of ARS,” the firm said in a statement. “Client holdings at the firm were reduced from approximately $2.1 billion in February 2008 to $280 million this month.”

“I am pleased we are able to resolve this issue and provide liquidity to clients who continue to hold ARS in their portfolios,” said CEO Paul Reilly.

The $300 million buyback seems a large sum for Raymond James to pay, considering in May the B-D noted that "any action by a regulatory authority to compel us to repurchase the outstanding ARS held by our clients would likely be vigorously contested by us.”

What's more, rival Morgan Keegan & Co. Inc. yesterday won a major court victory stemming from its sales of ARS. A federal judge in Atlanta on Tuesday rejected SEC claims that the brokerage, a unit of Regions Financial Corp., misled investors about $2.2 billion in ARS. In announcing the summary judgment, U.S. District Court Judge William S. Duffey Jr. said “failure to predict the market does not amount to securities fraud.”

The above information was obtained from InvestmentNews.com.

Attorney Lars Soreide, of Soreide Law Group, PLLC, feels this is good news for many of his clients who have pending FINRA arbitrations against Raymond James Financial. If you or a loved one have purchased auction rate securities from Raymond James call Soreide Law Group, PLLC and speak to a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.