Brokerage firms must reimburse Michigan investors, pay state $500,000

FOR IMMEDIATE RELEASE 
January 26, 2010
Contact: Jason Moon 517-335-1700

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LANSING – The Office of Financial and Insurance Regulation (OFIR) today announced that it has reached Auction Rate Securities (ARS) settlements with Morgan Stanley & Co. Inc., RBC Capital Markets Corporation and Deutsche Bank Securities Inc. The settlements require Morgan Stanley, RBC and Deutsche to offer full buybacks to any eligible customer who purchased an ARS from the brokerage firms, including up to approximately $239 million from Morgan Stanley, $65 million from RBC and $100,000 from Deutsche. The settlements also required Morgan Stanley, RBC and Deutsche to make settlement payments of approximately $408,000, $60,000 and $31,000, respectively, of which 90 percent was deposited immediately in the State of Michigan’s general fund, as required by law, and the remaining ten percent went to OFIR’s Michigan Investor Protection Trust.

The settlements with Morgan Stanley, RBC and Deutsche are in addition to OFIR’s previous ARS settlements with Banc of America, Citigroup, Comerica, JPMorgan, Merrill Lynch and Wachovia.

In total, OFIR settlements have resulted in offers for full buybacks of more than $3 billion to Michigan consumers and settlement payments of more than $7.2 million to the State of Michigan.

“In addition to providing over $300 million to Michigan investors, this settlement puts nearly $500,000 in the general fund,” OFIR Commissioner Ken Ross said.  

The settlements resolve a multi-state investigation into allegations that the brokerage firms misled investors regarding the liquidity risks associated with investing into ARS. The investigation alleged that the firms misled investors by representing ARS as a safe and secure investment option to buyers and were said to have the same liquidity as cash. When the market for ARS collapsed, investors were stunned to learn their accounts were frozen and they no longer had access to their money. The direct result for many investors was that their money was no longer available to support ongoing business operations.

The Michigan Investor Protection Trust is funded entirely by securities settlements and is used to educate Michigan consumers on investment issues and how to avoid financial scams. OFIR has used these funds to expand the “Investor Education in Your Community” program that educates Michigan investors on how to avoid falling victim to investment fraud. The fund is also used to support OFIR’s investment scams training for local law enforcement and aid the agency’s “Free Lunch Seminar Monitor” program that gives individuals an opportunity to fight back against unscrupulous promoters by reporting questionable investment practices to OFIR. 

If Michigan investors have any questions about an investment firm, professional or product, please contact OFIR toll-free at (877) 999-6442 or online at www.michigan.gov/ofir.

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