The Securities and Exchange Commission today said that it has settled charges against TD Ameritrade Holding Corp. Inc. for making inaccurate statements when selling auction rate securities. Also today, Charles Schwab & Co. denied charges by Attorney General Andrew Cuomo that the firm misrepresented the safety of such securities.
The settlement, which doesn't include a fine, will allow customers to sell back to Omaha, Neb.-based TD Ameritrade any auction rate securities that they bought prior to the collapse of the ARS market on or before Feb. 13, 2008.
“TD Ameritrade improperly marketed ARS to retail customers as short-term investments without telling them about the special risks of the ARS market,” Donald M. Hoerl, regional director of the SEC's Denver regional office, said in a statement.
Without admitting or denying the SEC's allegations, TD Ameritrade consented to the SEC's order and agreed to offer to purchase eligible auction rate securities from individuals, charities, small businesses and institutions with assets at the firm of $10 million or less.
The firm also agreed to compensate eligible customers who sold their auction rate securities below par by paying the difference between par and the sale price of the securities, plus interest.
Also, TD Ameritrade agreed to reimburse excess interest costs to eligible customers who took out loans from the company after Feb. 13, 2008.
And the firm, “at the customer's election, will participate in a special arbitration process with those eligible customers who claim additional damages,” the SEC said in its statement.
“Given our financial strength and ongoing illiquidity in the auction rate securities market, initiating a buyback program of this nature is the right thing to do for our clients,” Fred Tomczyk, president and chief executive at TD Ameritrade, said in a statement. “While our role in the market for these securities was significantly different from that of other financial institutions that have previously announced similar programs, we believe this is the best way for us to help clients who have been unable to find liquidity in the current market environment.”
Those interested in the offer can find more information at
amtd.com by clicking on the “Auction Rate Securities” link.
Aside from the settlement with TD Ameritrade, Mr. Cuomo's office sent a notice Friday to San Francisco-based Charles Schwab, saying it planned to sue the brokerage firm for claiming the securities were safe while selling them.
The notice gives Schwab five business days to respond and resolve the investigation.
In a statement, Schwab said no one could have foreseen the collapse of the entire auction-rate securities market, and that blame was unfairly laid on the brokerage firm for failing to disclose that risk. Schwab said it plans to fight the allegations.
TD Ameritrade shares fell 15 cents to $17.53 in afternoon trading. Shares of Schwab rose 6 cents to $17.14.
Additional reporting from the Associated Press.
