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Nuveen Investments Fined $3 Million by FINRA for Use of Misleading Marketing Materials Concerning Auction Rate Securities
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WASHINGTON — On May 23, 2011, the Financial Industry Regulatory Authority (FINRA) announced that it has fined Nuveen Investments, LLC, of Chicago, $3 million for creating misleading marketing materials used in sales of auction rate preferred securities (ARPS). The Nuveen Funds’ ARPS were a form of auction rate securities, which are long-term securities with interest rates or dividend yields that are reset periodically through an auction process. In contrast to other types of auction rate securities, the Nuveen ARPS were preferred shares issued by closed end mutual funds to raise money for the funds to use to invest.
It was reported on the FINRA website that by early 2008, over $15 billion of Nuveen Funds’ ARPS had been sold to retail customers by third-party broker-dealers. Nuveen did not sell the ARPS to customers, but in its role as distributor for Nuveen Funds, it created marketing brochures that were used by the broker-dealers who sold the ARPS to retail customers. The brochures were the primary sales and marketing material Nuveen created for the auction rate preferred securities. FINRA found that the brochures, also available on Nuveen’s website, failed to adequately disclose liquidity risks for ARPS. Nuveen neglected to include the risks that auctions for the ARPS could fail, investments could become illiquid and that customers might be unable to obtain access to funds invested in the ARPS for a period of time should the auctions fail. Instead, the brochures contained misleading statements which described the ARPS as safe and liquid investments. Also, FINRA found that Nuveen failed to maintain adequate supervisory procedures to ensure that the materials it used to market the auction rate preferred securities accurately described the features and risks of the securities.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “Nuveen was aware of facts that raised significant red flags about the ability of investors to obtain liquidity for their Nuveen auction rate securities yet failed to revise their marketing brochures to disclose these risks. This failure deprived investors of important information.”
It was reported that Nuveen failed to revise disclosures in their brochures after a lead auction manager responsible for approximately $2.5 billion of the ARPS notified Nuveen in early January 2008 that it intended to stop managing Nuveen auctions. On January 22, 2008, the lead manager did not submit support bids in an auction for a series of Nuveen auction rate preferred stock and that auction failed. FINRA found that the auction failure and Nuveen’s inability to find a replacement for the lead manager raised serious questions for Nuveen about whether investors in Nuveen’s ARPS would be able to obtain liquidity for the securities in future auctions. Despite this, Nuveen failed to revise its marketing brochures to reflect these risks and, thus, the brochures were misleading. In February 2008, widespread auction failures occurred throughout the auction rate securities market, including auctions for Nuveen funds ARPS.
The Nuveen funds have redeemed approximately $14.2 billion of the $15.4 billion of the ARPS that were outstanding on February 12, 2008. As part of the settlement, Nuveen agreed to use its best efforts to effect redemptions of any remaining outstanding Nuveen funds ARPS. Nuveen neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
This information was obtained on FINRA’s website.
If you or a family member have become a victim of the alleged fraudulent schemes of Nuveen Investments, LLC, call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover you losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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In an e-mail, an Oppenheimer & Co. spokesman wrote, “Oppenheimer & Co. denies that the allegations made by Massachusetts Securities Division have any basis in fact or law and intends to vigorously defend itself.”
Oppenheimer & Co. is a brokerage headquartered in Toronto. (Oppenheimer Funds Inc. is not affiliated with Oppenheimer & Co. Oppenheimer Funds is a member of the MassMutual Financial Group.)
ARS (Auction-rate securities) are primarily the debt of nonprofits and municipalities. The bonds paid money-market-like rates and traded every week or month, until the turmoil in the credit markets took over and demand for the securities dried up. As of early October, nearly a dozen major firms had agreed to settle auction-rate cases with regulators.
According to Galvin, the administrative complaint was the first action brought by a securities regulator against a “downstream” firm in the fallout from the collapse of the auction rate securities market. By Galvin’s definition, a downstream firm is one that may not have participated directly in the auctions, but sold the securities involved to their own customers.
This complaint sought to censure Oppenheimer & Co. and require the firm to return to their auction-rate securities customers the money those customers had put into the now-frozen instruments, and Galvin’s securities division also wants to revoke the broker-dealer agent registration of Oppenheimer & Co. chief executive Albert Lowenthal, Galvin’s office said in a press release.
That press release continued: “Lowenthal and other Oppenheimer executives who face possible fines sold their ARS holdings as they discovered the market was collapsing, but failed to inform their clients, the complaint charged.”
Galvin said in a statement: “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. They kept their clients, and their own advisors to those clients, in the dark, even as they, themselves, got out of that tottering market.”
Denying Galvin’s charges, the Oppenheimer & Co. spokesman wrote in an e-mail, “While there were sales by executives of auction rate securities, there were also executive purchases during this period, and these same executives continue to hold millions of dollars of auction rate securities (a fact oddly omitted from the complaint).”
The e-mail also said: “Oppenheimer sold auction rate securities in the same manner as the entire brokerage industry – as a cash management tool similar to a money market fund. Oppenheimer and its executives, like dozens of other ‘downstream’brokerages nationwide, had no knowledge of the conduct of the major institutions which caused the entire auction rate securities market to collapse.”
And the e-mail concluded, “Oppenheimer continues to work with regulators and financing sources to try to find a means for its clients to find liquidity from their auction rate holdings.”
Do you feel you were alledgedly scammed in the ARS market by Oppenheimer & Co. or by another brokerage? You may have legal rights to recover your money from the broker or brokerage firm that sold you your issue of Auction Rate Preferreds. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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How Does Demise of the $330 billion Auction-Rate Securities Market, Which Culminated in February 2008, Continue to be Felt Today?
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Huge segments of the Auction-Rate Securities (ARS) market provided financing for a wide array of municipal entities. How could those municipal entities receive financing when the ARS market froze? Reports indicate that bank letters of credit (LOCs) provided ongoing financing for many municipal borrowers. Now what?
When those LOCs begin rolling off, banks are extremely reluctant to roll them forward and impending default is staring many of these municipal borrowers right in the face. The capital markets are not anxious to provide liquidity and banks are equally reluctant. Thus while the Federal Reserve throws support behind many market segments, the municipal market has retraced back to levels last seen in early 2009.
The Wall Street Journal sheds light on this dislocation within the municipal market in writing, ‘New Hit to Strapped States,’
“With the market for municipal bonds tumbling, citi (C: 5.13 +0.09 +1.79%)es, hospitals, schools and other public borrowers are scrambling to refinance tens of billions of dollars of debt this year, another sign that the once-safe market is under duress.
The muni bond market was hit with the latest wave of bad news Thursday, prompting a selloff that sent the market to its lowest level since the financial crisis. A New Jersey agency was forced to cut the size of a bond issue by about 40% because of mediocre demand, and pay a higher rate than expected. And mutual fund giant Vanguard Group shelved plans for three new muni bond funds, citi (C: 5.13 +0.09 +1.79%)ng market turmoil.
Yields on 30-year triple-A rated general obligation bonds shot higher to 5.01% on Thursday, reflecting a spike in perceived risk, according to Thomson Reuters Municipal Market Data. The last time those bonds yielded 5% was Jan. 30, 2009, during the financial crisis.
Amid the selloff, public borrowers such as states and utilities face a wave of refinancing stemming from deals cut mostly during the crisis. The deals involved letters of credit from banks that were designed to keep financing costs down for government entities in need of cash.
Though the financing deals can be meant to last decades, the letters of credit underpinning them are expiring sooner. That could force the borrowers in many cases to pay higher interest rates or seek guarantees at higher costs. For the weakest borrowers, new guarantees may not be available and refinancing too costly. There are about $109 billion worth of letters of credit and similar guarantees expiring this year, according to Bank of America Merrill Lynch. Some $53 billion in letters of credit alone is expiring this year, according to Thomson Reuters.
“Municipalities may be hard-pressed to come up with this money or refinance this debt,” said Eric Friedland, a municipal analyst at Fitch Ratings. The ratings firm is scouring to identify risks among weaker municipalities that are seeking to renew these deals, and says it could downgrade some.
The rollover rush stems from the credit crisis that roiled the U.S. in 2008. Municipalities had issued so-called auction-rate securities, instruments whose rates reset at weekly auctions. Amid the credit crunch, buyers at these auctions vanished.”
These ARS markets not only scammed investors but in the process provided financing to entities at interest rate levels which did not appropriately price the inherent level of risk. That fact is now coming to light and investors are responding rationally in forcing these borrowers to pay higher rates to gain financing.
Do you feel you were alledgedly scammed in the ARS market? You may have legal rights to recover your money from the broker or brokerage firm that sold you your issue of Auction Rate Preferreds. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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Blackrock, Inc., Announces Refinancing of Auction Rate Preferred Shares Issued by BlackRock Taxable Closed-End Funds
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New York –In November, 2010, BlackRock, Inc. (NYSE:BLK) announced the intention to redeem all of the outstanding auction rate preferred shares (ARPS) issued by five of its taxable closed-end funds: BPP, BTZ, PSW, PSY, and BGT. The announced redemptions encompass all of the remaining taxable ARPS issued by BlackRock closed-end funds and total approximately $569 million. When taken together with BlackRock’s previously announced redemptions of ARPS, BlackRock has redeemed more than $3.7 billion of BlackRock’s total outstanding ARPS issued across its taxable and tax-exempt closed-end funds. BlackRock announced that the ARPS would be replaced with either reverse repurchase agreement financing or a credit facility on a fund-by-fund basis and, in each case, the refinancing is expected to result in a lower cost of financing for each fund under current market conditions.
BlackRock, Inc., also stated that BTZ and PSY are nominal defendants in a previously announced shareholder derivative action filed in the State of New York. In exchange for the shareholder plaintiff’s agreement to withdraw a previously filed motion for preliminary injunction enjoining any further redemptions of ARPS, each of these funds agreed to provide the plaintiffs in those actions with 30 days prior notice of any additional redemptions. As a result, although BTZ and PSY currently intend to redeem all of their ARPS as set forth below, they will not issue formal Notices of Redemption with respect to their ARPS for at least 30 days from today. The redemption dates set forth below for BTZ and PSY are conditioned upon the absence of any legal impediments to completing the redemptions as scheduled.
For more information on the specific BlackRock ARPS that are to be redeemed, including CUSIP numbers and anticipated redemption dates, please contact Soreide Law Group today. If your issue is not redeemed you may have legal rights to recover your money from the broker or brokerage firm that sold you your issue of Auction Rate Preferreds.To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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