JPMorgan Chase & Co. Pays $1.1M to New Jersey Bureau of Securities
to Settle Auction Rate Securities Case
The Office of the Attorney General
through its Bureau of Securities
yesterday signed a final Consent
Order that requires JPMorgan Chase & Co.
(JPMorgan) to complete or confirm
its repurchase of auction-rate securities
(ARS) from New Jersey clients to
settle allegations that the firm's
securities dealers failed to disclose
risks of the ARS market.
Although marketed and sold to investors
as safe, liquid, and cash-like investments,
ARS are actually long-term investments
subject to a complex auction process
that failed in early 2008, causing
illiquidity and lower interest rates
than investors were promised.
Under this settlement, individual
investors in New Jersey are eligible
to have approximately $91,250,000
in ARS repurchased.
“ New Jersey investors, whose ARS
investments were frozen as a result
of JPMorgan's role in these auction
market failures, will now regain
access to their funds under terms
of this settlement ,” Attorney General
Paula T. Dow said. “Our Bureau of
Securities continues to work with
other state regulators to protect
investors and ensure the return of
The order also requires JPMorgan
to pay a $1,149,028.56 fine to New
Jersey . The fine amount represents
the state's pro-rata share of a settlement
negotiated by a multi-state task
force of state regulators formed
by the North American Securities
Administrators Association (NASAA).
“Our Bureau of Securities worked
with other state regulators in a
task force that combined and coordinated
investigative resources,” said Thomas
R. Calcagni, Acting Director of the
Division of Consumer Affairs. “ New
Jersey will continue to be an active
leader in investor protection.”
The Bureau has now entered into
Consent Orders with six firms to
resolve their conduct in the ARS
market. These agreements have generated
over $1 billion in repurchases of
ARS for New Jersey investors.
“From the first failed ARS, the
Bureau of Securities has sought to
secure the necessary relief for investors
stuck with these unsuitable and illiquid
products,” said Marc B. Minor, New
Jersey Bureau of Securities chief. “JPMorgan
has agreed to do what's right by
offering to repurchase its clients'
positions, and I fully expect other
firms that employed similar practices
in marketing and selling these securities
in New Jersey to do the same.”
During the investigation, regulators
discovered that JPMorgan inappropriately
marketed and sold ARS without adequately
informing their customers of the
increased risks of illiquidity associated
with the product. The investigation
focused on conduct occurring between
the fall of 2007 through the failures
in February 2008 .
The investigation into JPMorgan's
role in the marketing of auction
rate 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,
by April 2008, 12 states, including
New Jersey , formed a task force
to investigate whether the nation's
prominent Wall Street firms had systematically
misled investors when placing them
in auction rate securities.
The Consent Order announced yesterday
concludes New Jersey 's auction rate
securities case against JPMorgan
as to retail investors.
BOS Investigating Attorney Peter
C. Cole led New Jersey 's efforts
in securing this settlement with
The Bureau of Securities, a part
of the Division of Consumer Affairs,
can be contacted toll-free within
New Jersey at 1-877-I-INVEST (1-877-446-8378)
or from outside New Jersey at 973-504-3600.
The Bureau's web site is located
at www.njsecurities.gov .