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Merrill Lynch to Pay $459,660 Fine to Delaware for Sale of Auction Rate Securities

Department of Justice | Department of Justice Press Releases | Fraud | Date Posted: Friday, September 11, 2009



The Delaware Department of Justice announced today that it has reached
agreements with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) following an investigation into its marketing and sale of auction rate securities (ARS). The company will pay a fine of more than $459,660 to the State of Delaware for misleading investors about the safety of the ARS
market. Fines collected from these investment firms will be paid to the Delaware Investor Protection Fund.

In November 2008, following a multi-state investigation into the failure of the ARS market, settlements were reached between state and federal securities regulators and eleven investment firms who offered these products for sale. The firms agreed to repurchase more than $60 billion of auction rate securities from investors nationwide and were required to notify investors of the repurchase offer.

In Delaware alone, Merrill Lynch sold more than $49 million in auction rate securities. These agreements send a clear message to investment firms that we will hold them accountable for misleading investors about the sale of these supposedly safe and liquid investment products,” stated James Ropp, Delaware Securities Commissioner. “We encourage Delaware investors
to contact us at (302) 577-8424 if they have questions about the repurchase of Auction Rate Securities by these or other investment firms.”

Auction rate securities, also referred to as ARPS, short term paper, 7 day paper, or floaters, are long-term financial instruments with interest rates that are reset through weekly or monthly auctions. When auctions run properly, investors who hold these securities can buy and sell them on a regular
basis. However, when there are not enough buyers for every ARS being offered for sale, auctions “fail” and investors are forced to hold their ARS until the next successful auction. Since early 2008, the majority of these auctions have failed and many investors have been unable to sell their frozen
ARS holdings.

In response to investor complaints, state-led investigations into possible violations of securities laws in connection with the sale of ARS began in April 2008. The North American Securities Administrators Association formed a multi-state Task Force, comprised of securities regulators in 12
states, to investigate whether Wall Street firms had systematically misled investors who purchased these securities. The Delaware Department of Justice Securities Unit is a Task Force member.
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Merrill Lynch to Pay $459,660 Fine to Delaware for Sale of Auction Rate Securities

Department of Justice | Department of Justice Press Releases | Fraud | Date Posted: Friday, September 11, 2009



The Delaware Department of Justice announced today that it has reached
agreements with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) following an investigation into its marketing and sale of auction rate securities (ARS). The company will pay a fine of more than $459,660 to the State of Delaware for misleading investors about the safety of the ARS
market. Fines collected from these investment firms will be paid to the Delaware Investor Protection Fund.

In November 2008, following a multi-state investigation into the failure of the ARS market, settlements were reached between state and federal securities regulators and eleven investment firms who offered these products for sale. The firms agreed to repurchase more than $60 billion of auction rate securities from investors nationwide and were required to notify investors of the repurchase offer.

In Delaware alone, Merrill Lynch sold more than $49 million in auction rate securities. These agreements send a clear message to investment firms that we will hold them accountable for misleading investors about the sale of these supposedly safe and liquid investment products,” stated James Ropp, Delaware Securities Commissioner. “We encourage Delaware investors
to contact us at (302) 577-8424 if they have questions about the repurchase of Auction Rate Securities by these or other investment firms.”

Auction rate securities, also referred to as ARPS, short term paper, 7 day paper, or floaters, are long-term financial instruments with interest rates that are reset through weekly or monthly auctions. When auctions run properly, investors who hold these securities can buy and sell them on a regular
basis. However, when there are not enough buyers for every ARS being offered for sale, auctions “fail” and investors are forced to hold their ARS until the next successful auction. Since early 2008, the majority of these auctions have failed and many investors have been unable to sell their frozen
ARS holdings.

In response to investor complaints, state-led investigations into possible violations of securities laws in connection with the sale of ARS began in April 2008. The North American Securities Administrators Association formed a multi-state Task Force, comprised of securities regulators in 12
states, to investigate whether Wall Street firms had systematically misled investors who purchased these securities. The Delaware Department of Justice Securities Unit is a Task Force member.
# # #

image_printPrint


Graphic that represents delaware news on a mobile phone

Keep up to date by receiving a daily digest email, around noon, of current news release posts from state agencies on news.delaware.gov.

Here you can subscribe to future news updates.