Raymond James “long-suffering clients remain frozen in auction-rate securities hell,” says Gretchen Morgenson in her August 2 article in the New York Times called “Investors Without a Lifeline.” Raymond James misrepresented auction rate securities to retail investors as safe and liquid, just like many larger Wall Street firms that have settled with the regulators and agreed to buy them back. But Raymond James is refusing to buy back auction rate securities it sold to investors on the ground that it did not underwrite them, it just sold them. In its most recent quarterly filing, Raymond James further indicated that it lacks sufficient regulatory capital and borrowing power to buy back the securities, and says, if it were forced to do so, that “could adversely affect the results of operations,” according to the article.
While Raymond James says that it cannot afford to repurchase the frozen auction rate securities held by its clients, it did have sufficient earnings to raise its dividend by 10%, which “is especially bountiful for Thomas James, its C.E.O.,” who owns 12.2 percent of the outstanding shares, reported Ms. Morgenson. That amounts to a dividend of approximately $6.5 million this year, which will be in addition to other compensation paid to Mr. James totaling approximately $3.55 million last year, she added.
Moreover, Raymond James did spend approximately $6.3 million in 2008-2009 to purchase naming rights to the Tampa Bay Buccaneers stadium, a contract that runs to 2016 and increases 4 per cent per year, according to the article. Ms. Morgenson comments: “Nothing wrong with spending money to build a brand, of course. But shouldn’t treating your customers well come ahead of keeping your name on a stadium?”
Then there is the fact that at least one other firm that sold but did not underwrite auction rate securities has recently agreed to repurchase them. In that connection, TD Ameritrade announced a settlement with the Securities and Exchange Commission agreeing to repurchase $465 million of auction rate securities from its clients.
On July 21, Morgan Keegan, a regional brokerage firm like Raymond James, was sued by the SEC for selling its clients $925 million of auction rate securities while misleading them about the risks. Will Raymond James be next?
Whatever the outcome, as Ms. Morgenson aptly concludes, the firms’ conduct “gives credence to that age-old Wall Street question: But, where are the customers’ yachts?”
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and corporate investors in auction-rate securities cases. For further information, please contact us.