N.J. Bureau of Securities Participates in Auction Rate Securities Settlement With Morgan Stanley and J.P. Morgan
NEWARK -- The N.J. Bureau of Securities, as part of a national task force with other state regulators, has reached a settlement with Morgan Stanley and J.P. Morgan Chase and Co. (“J.P. Morgan”) which will give thousands of affected clients, including New Jersey investors, access to over $7 billion in funds that have been frozen in the auction rate securities (ARS) market.
Morgan Stanley will pay a civil penalty in the amount of $35 million to the states and J.P Morgan will pay $25 million. The penalties in these matters will be distributed on a pro-rata basis.
“The work of Bureau Enforcement Chief Rick Barry in this multi-state effort was noted at today’s settlement announcement and his efforts on behalf of New Jersey investors are greatly appreciated,” said Vincent J. Oliva, NJBOS Chief.
Morgan Stanley will provide liquidity to its retail investors who purchased auction rate securities through Morgan Stanley before February 13, 2008, and who are unable to sell those securities because of failed auctions, by offering to buy back the securities at par. The categories of investors covered in the settlement includes all individual investors, all charities and non-profits, and small to mid-sized businesses. Morgan Stanley has made the offer effective immediately, and will complete all repurchases from investors who accept this offer by December 11, 2008.
Morgan Stanley will provide notice to its customers of the settlement terms and Morgan Stanley will establish a dedicated telephone assistance line, with appropriate staff, to respond to questions from customers concerning the terms of the Settlement.
Morgan Stanley will also:
- reimburse all retail investors who sold their auction rate securities at a discount after the market failed the difference between what they received and par;
- consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by retail investors as a result of not being able to access their funds, in which Citigroup will concede liability for purposes of arbitration on the question of the illiquidity of auction rate securities;
- provide acceptable liquidity solutions to all other institutional investors by November 4, 2008; and
- reimburse all refinancing fees to any state municipal issuers who issued auction rate securities in the initial primary market between August 1, 2007 and February 11, 2008, who refinanced those securities after February 11, 2008.
Under the terms of the settlement, JP Morgan and its affiliates, including Bear Stearns & Co., Inc., will offer to repurchase, no later than November 12, 2008, all illiquid auction rate securities from all JP Morgan individual investors, charities, not-for-profit companies and small to mid-sized businesses.
JP Morgan will also:
- Fully reimburse all retail investors who sold their auction rate securities at a discount after the market failed in February 2008;
- Consent to a special, public arbitration procedure to resolve claims of consequential damages suffered by retail investors as a result of not being able to access their funds, in which JP Morgan will not contest its liability for the illiquidity of the auction rate securities and in which JP Morgan will pay all forum fees;
- Undertake to expeditiously provide liquidity solutions to all other institutional investors, with regular progress reports and subject to an outside deadline of December 2009;
- Reimburse all refinancing fees to municipal issuers who issued auction rate securities through JP Morgan since August 1, 2007, and who refinanced those securities after the market failed; and
- Establish a dedicated telephone assistance line, with appropriate staff to respond to questions from customers.