Raymond James Settles Auction Rate Securities Dispute with Regulators


Raymond James Financial has agreed to buy back $300 million in auction-rate securities from clients and pay a fine of $1.7 million as part of a settlement the Securities and Exchange Commission and the states of Florida, Texas, Indiana, Missouri, New York, North Carolina, Pennsylvania and South Carolina, according to Bruce Kelly’s InvestmentNews article entitled “Raymond James to pony up $300M to buy back ARS.” The agreement reportedly calls on Raymond James to extend an offer to repurchase the securities within 30 days, and leave it open for 75 days.

Raymond James represented that auction-rate securities were “cash equivalents” and “highly liquid” short-term investments with a higher yield than money market accounts, according to the article. In fact, the auction-rate securities were not highly liquid, short-term or cash-equivalent investments.

The auction-rate securities market froze in the winter of 2008 when banks that had been secretly making supporting bids ceased doing so. That left institutional and retail clients unable to liquidate billion of dollars of auction-rate securities.

Raymond James sold about $2.1 billion of auction-rate securities to its clients, according to the article. Until this settlement, Raymond James refused to buy back any of the auction-rate securities it sold, noting 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.”

Instead, Raymond James took the position that all it needed to do was try to facilitate redemptions by the issuing firms. “These [issuing firms] are going to refinance; otherwise, as I’ve told them, ‘We’re going to sue you guys,'” Mr. James was quoted as saying, adding: “‘You don’t understand. We distributed for you guys, and you haven’t lived up to your obligations.'”

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

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 45 occasions. Page Perry’s attorneys have extensive experience in representing investors in cases involving auction-rate securities. For further information, please contact us.