Stifel Nicolaus & Co. has settled with the state Bureau of Securities of New jersey that requires Stifel to repurchase $5.4 million in auction-rate securities (ARS) from New Jersey clients to settle allegations that its securities dealers sold the securities without disclosing known risks of the ARS market.
Brokerage firms faced a slew of FINRA arbitration claims and class action lawsuits related to sales practices of auction rate securities. Most of the firms have already settled with injured investors. Stifel is the latest to belly up to the bar and settle, at least with New Jersey clients.
Under the terms of the settlement, Stifel Nicolaus will repurchase the securities sold to retail investors in New Jersey. Although marketed and sold to investors as safe, liquid, and cash-like investments, the ARS were actually long-term investments subject to a complex auction process that failed in early 2008. The investments were subject to much greater illiquidity and lower interest rates than investors were promised.
We expect to continue to see more lawsuits and FINRA arbitration claims filed involving auction rate securities.
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