NEWARK – Acting Attorney General Paula T. Dow, Acting Consumer Affairs Director Sharon Joyce and Bureau of Securities Chief Marc B. Minor today announced that the Bureau has signed a final Consent Order that requires Banc of America Securities LLC and Banc of America Investment Services, Inc. (together, “Bank of America”) to complete or confirm its repurchase of auction-rate securities (ARS) from New Jersey clients to settle allegations that the firm’s securities dealers failed to disclose risks of the ARS market.
Under this settlement, individual investors in New Jersey are eligible to have approximately $386 million in ARS repurchased.
“New Jersey investors became victims through no fault of their own when their auction rate securities at Bank of America were frozen,” Acting Attorney General Dow said. “This settlement fully protects these investors and holds Bank of America accountable for how it marketed the auction rate securities.”
Although often marketed and sold to investors as safe, liquid, and cash-like investments, ARS are actually long-term investments subject to a complex auction process that failed in early 2008, revealing illiquidity and lower interest rates than investors were promised.
“State regulators, including our Bureau of Securities, combined their resources and worked together on behalf of investors throughout the country,” Joyce said. “The resolution of this matter underscores how state regulators are an important resource in protecting investors.”
“The Bureau of Securities has worked hard to provide much needed relief to investors stuck with these unsuitable and illiquid products,” Minor said. “I am pleased that Bank of America has agreed to do what’s right by offering to repurchase clients’ positions.”
The order also requires Bank of America to pay $1,268,393 in civil penalties to the Bureau. The fine amount represents the state’s pro-rata share of a settlement negotiated by a multi-state task force of state regulators formed by the North American Securities Administrators Association (NASAA).
During the investigation, state regulators discovered that Banc of America Securities LLC was among other lead broker-dealers who used “support bids” to artificially prop up auctions and create the illusion of a normal, functioning, and liquid auction market. Further, Bank of America inappropriately marketed and sold ARS without adequately informing their customers of the increased risks of illiquidity associated with the product for the time period August 1, 2007, through February 11, 2008.
The investigation into Bank of America’s role in the marketing of auction rate securities is part of a larger state-led effort to address problems in connection with ARS investments. Early in 2008, state offices began receiving complaints from investors throughout the country. As a result, 12 states, including New Jersey, formed a task force to investigate whether the nation's prominent Wall Street firms had systematically misled investors when placing them in auction rate securities.
BOS Investigating Attorney Peter C. Cole led New Jersey’s efforts in securing this settlement and protecting Garden State investors.
The Bureau of Securities can be contacted toll-free within New Jersey at 1-877-I-INVEST (1-877-446-8378) or from outside New Jersey at 973-504-3600. The Bureau's web site is located at www.njsecurities.gov.