New Jersey Division of Consumer Affairs Announces Credit Suisse Securities (USA) to Repurchase Auction Rate Securities and Pay $1 Million
in Civil Penalties under Consent Order Issued by Bureau of Securities
NEWARK – The New Jersey Bureau of Securities, within the Division of Consumer Affairs, has signed a final Consent Order requiring Credit Suisse Securities (USA) LLC ("Credit Suisse") to repurchase auction-rate securities (ARS) from New Jersey clients to settle allegations that Credit Suisse sold ARS without disclosing known risks of the ARS market.
Although marketed and sold to investors as safe, liquid, and cash-like investments, ARS were actually long-term investments subject to a complex auction process that failed in early 2008, revealing illiquidity and lower interest rates than investors were promised.
Credit Suisse sold approximately $275.6 million in ARS to retail and institutional investors in New Jersey during the time period covered by the settlement. As part of its findings, the Bureau determined that Credit Suisse failed to reasonably supervise its agents. Credit Suisse will pay $1,057,996 in civil penalties to the State under terms of the Consent Order.
"Financial firms must inform potential investors of all known risks before investors decide where to put their hard-earned dollars. When such disclosure does not occur, investors can suffer harm that they did not bargain for," Attorney General Paula T. Dow said. "We've acted in this matter to make investors whole and to ensure proper disclosure occurs going forward."
This Consent Order represents the 13th settlement that the Bureau of Securities has reached with firms that sold ARS to New Jersey investors. To date, more than $3 billion of these assets have been repurchased or offered to be repurchased from New Jersey investors as part of settlements with firms that marketed and sold these products.
"Investors were shocked to find they could not get their funds when the ARS markets froze. Concealing or not revealing the risks in any investment offered to consumers violates state law, and our Bureau of Securities will act to protect investors when such violations occur," said Thomas R. Calcagni, Director of the State Division of Consumer Affairs.
The investigation into Credit Suisse's role in the sale of these securities is part of a larger state-led effort to address problems in connection with ARS investments. Early in 2008, state offices began receiving complaints from investors throughout the country. As a result, 12 states, including New Jersey, formed a task force to investigate whether certain Wall Street firms had systematically misled investors when placing them in auction rate securities.
"State securities regulators are on the front lines in protecting investors from illegal activities that can cost them their savings," said Abbe R. Tiger, Securities Bureau Chief. "This ARS settlement and the others achieved earlier highlight how state securities regulators work together to hold violators accountable when investor protection laws are not followed."
Bureau of Securities Investigating Attorney Peter C. Cole led New Jersey's efforts in securing these settlements and protecting Garden State investors.
The Bureau of Securities can be contacted toll-free within New Jersey at 1-866-I-INVEST (1-866-446-8378) or from outside New Jersey at 973-504-3600. The Bureau's website is located at www.njsecurities.gov .