Corporate & Securities Law

By Jim Hamilton

Bank of America, RBC Settle Auction Rate Securities Claims

The SEC announced preliminary settlements in principle with Banc of America Securities LLC and Banc of America Investment Services, Inc., and with RBC Capital Markets Corp. The agreements will allow investors to sell back auction rate securities they purchased before the ARS market collapsed in February 2008.

The proposed settlements would include charges alleging that the firms made misrepresentations to thousands of its customers when it told them that ARS were safe and highly liquid cash and money market alternative investments. The liquidity of these securities, however, was premised on the firms providing support bids for auctions when there was not enough customer demand, and this was not adequately disclosed this support to customers. The SEC claimed that the firms continued to market ARS as cash and money market alternatives despite being aware of escalating liquidity risks.

The firms may also face the prospect of financial penalties. Determinations as to the penalty amount, if any, will take into account, among other things, an assessment of whether the firms satisfactorily completed their obligations under the settlements, the costs incurred by the firms in meeting those obligations, including penalties imposed by other regulators and the cost of remediation, and the extent of cooperation with the Commission's investigation.

Links to the RBC and BoA releases.

Full post as published by Jim Hamilton's World of Securities Regulation on October 09, 2008 (boomark / email).