Massachusetts Secretary of the Commonwealth William Galvin today charged Oppenheimer & Co. Inc. with fraud and unethical conduct in the sales of auction rate securities.
The complaint seeks to censure the New York broker-dealer and require it to return to Massachusetts ARS customers the money they invested.
Massachusetts investors are unable to access nearly $56 million since the auction market froze last February, the complaint said.
In addition, the state wants to revoke the broker-dealer agent registration of Oppenheimer’s chief executive Albert Lowenthal.
The complaint charges that he and other executives, who could face fines, sold their auction rate securities holdings as they discovered the market was collapsing but failed to inform their clients.
“Oppenheimer executives betrayed the
trust of their clients by continuing to market these auction rate securities as safe cash equivalents when they knew this was not the case,” said Mr. Galvin said in a statement.
“They kept their clients and their own advisers to those clients, in the dark, even as they themselves got out of that tottering market.”
Two weeks before the auctions failed, Oppenheimer executives including Mr. Lowenthal; Larry Spaulding, chief operating officer; Greg White, managing director; and Louis Gelormino, ARS desk supervisor and senior vice president, sold their holdings.
In selling ARS to clients, the firm avoided the word “auction” and classified them as “cash equivalent” on customer account statements, the complaint said.
A spokesman for Oppenheimer & Co. Inc., which is not affiliated with OppenheimerFunds of Denver, was not available for comment at press time.
An administrative hearings officer will hear the civil complaint, filed with the state’s securities division.
Rulings can be appealed and at that point would become a court process.
