Raymond James settles charges for up to $350M

AP News
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Posted: Jun 29, 2011 4:23 PM
Raymond James settles charges for up to $350M

Raymond James & Associates Inc. will pay up to $350 million to settle state and federal charges that it lied to clients about auction-rate securities, telling them the investments were as safe as cash before the credit crisis made the bonds impossible to sell.

The investment management and brokerage company said Wednesday that it will rebuy all of the outstanding bonds for face value _ about $350 million, according to officials with Securities and Exchange Commission. The company did not admit or deny the charges.

Raymond James, based in St. Petersburg, Fla., said the cost will be closer to $280 million. The settlement will force it to take a pretax charge of about $50 million in the third fiscal quarter ending June 30, the company said.

Raymond James also will pay fines to the states totaling $1.75 million.

Auction-rate securities resemble corporate bonds, except that their interest rates reset at frequent auctions. Investors can sell the securities at auction, but if there are not enough buyers, holders may be stuck, unable to cash out.

That's what happened during the credit crunch that started in early 2008. Investors were caught holding billions in bonds that were impossible to sell because no one wanted to bid on them. Since then, regulators have secured settlements forcing banks to repurchase more than $61 billion in auction-rate securities from investors, the North American Securities Administrators Association said in a statement.

The SEC said Raymond James lied to its clients about the investments, calling them "safe, liquid alternatives" to money-market funds and other investments that can be converted into cash quickly and easily.

Raymond James representatives failed to describe the risks and complexity of the securities, including the difficulty of selling them when too few buyers showed up at auction, the SEC said.

The SEC ordered Raymond James to cease and desist from future violations and reserved the right to seek a financial penalty in the future.

The settlement also resolves separate charges brought by state securities regulators in Florida, Texas, Indiana, New York, North Carolina, Pennsylvania and South Carolina, the North American Securities Administrators Association said in a statement. That group said there are about $300 million of the bonds still in clients' hands.

The charges were filed against Raymond James and Raymond James Financial Services Inc., a broker-dealer subsidiary.

Clients affected by the settlement will receive notice from Raymond James within 30 days. After that, they will have 75 days to offer the bonds for repurchase.

Other banks that have settled similar suits include Citigroup Inc., UBS AG, Bank of America Corp. and Deutsche Bank.

Raymond James is a diversified financial services company that specializes in investment, financial planning, investment banking and asset management.

Raymond James shares rose 81 cents, or 3 percent, to $32.03 in late-afternoon trading Wednesday.